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Retirement plans for solos: One size does not fit all

As if the challenges involved with practicing law and running their own offices were not enough, many solo practitioners find even more obstacles toward the end of their careers, when it comes time to retire.

“Most of these people tend to work very long hours,” said Shabri G. Moore, president of Moore Wealth Inc. in Frederick, who advises solos on retirement planning. “I want to see that they not only work hard, but that they spend some of that hard-earned money and actually enjoy their life.”

A common piece of advice for retirement planning is to start early, but for many solos, day-to-day tasks and expenses of running the firm make planning for the future easier said than done.

“In their early years they’re putting everything they’ve earned right back into their business,” said Moore, so they start planning for retirement later than their colleagues in large firms.

“The obstacle is taking care of your clients, basically,” said Rob Ross Hendrickson, chair of the Maryland State Bar Association’s Senior Lawyers Section. Finding time to plan for the future, he said, “can possibly be very difficult.”

For those who want to catch up fast, a defined benefit plan allows for the most savings in a short amount of time. With this plan, “they have the opportunity to put away … $200,000 per year if they chose to do so,” said Moore.

Defined benefit plans require compliance with a host of rules. For example, 40 percent of a firm’s employees — or two employees, whichever is more — must also benefit, Moore said. However, the choice of which categories of employees to cover is up to the employer, which leaves open the possibility of excluding those with higher salaries to save money.

Another option is to use a SEP IRA, which allows contributions of up to 25 percent of W-2 income, or 20 percent of adjusted self-employment income for those who are not incorporated, with a limit of $50,000 for 2012.

The downside to the SEP IRA is that in most cases, employers are not able to exclude employees, said Jason Silverberg, vice president of financial planning at Financial Advantage Associates Inc. in Rockville. Employers must contribute equally to all eligible participants.

The traditional tax-deductible 401(k), which allows contributions of $17,000 a year up to age 50 and $22,500 annually after that, is a better fit for large companies and would be “like killing an ant with an elephant gun” for solos and small firms, Silverberg said.

True sole proprietors, though, can opt for a one-participant 401(k), also known as a Solo-k or Uni-k. This will cover only the attorney and his or her spouse, Silverberg said.

Another source of retirement income for solos is the sale of the practice, which Moore said can add a “psychological issue” to the mix.

Solos “are very closely tied to their businesses,” she said. “They’ve built it, they’ve nurtured it … they’ve put their life effort into it,” making letting go of all that their greatest challenge.

While continuing to plan for the expected scenario of retirement, planning for the unexpected — an illness, accident or other family circumstance that calls for a hiatus from work — is equally important, said Moore.

“There’s going to be situations where a solo practitioner … is forced into retirement,” she said. “We like to see that they have an emergency fund in place.”

Easing the transition

Constance Putzel, a retired attorney from Towson who wrote a chapter in “The Lawyer’s Guide to Buying, Selling, Merging, and Closing a Law Practice” for the American Bar Association, also recommended having an estate plan and perhaps long-term care insurance. A “key man” life insurance policy can also be useful, by helping the person in charge of closing the solo practice, often a spouse, with the costs of doing so.

Putzel herself eased into retirement with a long-term plan.

“What I did …was to see who else in the area was doing [my] kind of work,” she said.

Putzel decided to become Of Counsel to a nearby firm, which took over her practice one year later. She said this course of action allows for a smoother transition when it comes time to sell.

However, she added, for some people becoming involved at another firm can lead to many more years of practice, instead of retirement.

“Practicing law is something that if you love it, you never want to give it up,” she said.

Sylvia Hsieh of Dolan Media Newswires contributed to this article.


Plan Maximum Annual Contribution (2012) Pros Cons
Defined Benefit Plan $200,000 -High annual limit allows for saving a lot of money in a short time-Good for last minute retirement planning -Must cover 40 percent of employees (or two employees if firm has less than five)-Complicated technical rules for covering employees 
SEP IRA The lower of:$50,000OR 25 percent of W-2 earnings/ 20 percent of adjusted self-employment income for non-incorporated solos


Higher maximum annual than 401(k) -Must cover all eligible employees equally
Traditional 401(k) $17,000 per year for those under 50 and $22,500 for those over 50 years old Contributions are tax deductible -More than is necessary for a small firm-Lower maximum annual—takes longer to save-Few investment fund choices


One-participant 401(k)(also called Solo-k or Uni-k) $17,000 per year for those under 50 and $22,500 for those over 50 years old -Contributions are tax deductible-Much simpler than the traditional 401(k) -Only works for solos with no employees (other than a spouse)-Lower annual maximum —takes longer to save-Few investment fund choices