Securing a financially stable retirement isn’t always straightforward for dentists, who must often overcome a series of unique challenges before they can build their long-term wealth.
Managing a dental practice poses an extra hurdle that dentists must overcome, with expenses such as employee salaries, equipment purchases, rent and utilities eating into revenue.
Despite being among some of the country’s highest earners, dentists must work with experts in dental practice accounting in order to plan their taxes wisely and make the most of their retirement savings.
Let’s look at some common retirement plan options for dentists:
Traditional IRA
· Offers tax-deductible contributions to lower taxable income
· 2025 contribution limit of $6,500 ($7,500 for those aged 50 or above)
· Withdrawals made in retirement are taxed as ordinary income
Roth IRA
· After-tax dollars are used for contributions
· Contribution limits are the same as traditional IRAs
· Tax-free qualified withdrawals in retirement
· Penalties don’t apply to contribution withdrawals
SIMPLE IRA plans (Savings Incentive Match Plan for Employees)
Currently, employee contribution limits are set at $15,500, with an extra $3,500 catch-up for the over 50s.
Employers must either match the contributions of the employee up to 3% of compensation, or for all eligible employees, provide them with a 2% contribution.
It’s important to remember that contributions lower your taxable income.
SEP IRA options (Simplified Employee Pension)
· In 2025, the contribution limit is set at the lesser of: 25% of compensation or $66,000
· Tax-deductible contributions for the practice
· All contributions are made by the employer
· Administration is more affordable and less complex
For a small dental practice or one whose income tends to fluctuate, this choice can be a sensible one.
Solo 401(k) for independent practitioners
· Employee contribution of $22,500 (catch-up of $7,500 for those over 50)
· Employer contribution of up to 25% of compensation
· Combined maximum of $66,000 ($73,500 for those over 50)
· Traditional (pre-tax) or Roth contributions
· Loan provisions for liquidity
· Contribution limits are higher than IRAs
If you’re a dentist who is self-employed or has no employees on a full-time basis, this can be an effective option.
When it comes to dentists, Solo 401(k)s have the following as their most significant features:
· Both employer and employee contributions can be made
· Contributions can be changed according to the performance of the practice
· If necessary, borrowing against your balance is an option
· If eligible, spouses may participate
Cash balance plans
Popular among those within the dental profession, cash balance plans combine features of both defined benefit, and defined contribution approaches:
· Dental professionals over the age of 60 can contribute far more than 401(k) caps; exceeding $300,000 in contributions annually.
· Allowing for deferrals of up to 45%, contributions in a cash balance plan are tax-deductible.
· This particular plan sets a specific retirement amount
· Should you change jobs at any time, your account balance can be taken with you.
Defined benefit plans
Benefit plans of a more traditional, pension-style, can still be beneficial, providing:
· A retirement income that’s easy to predict, based upon salary and service years
· Investment risk that’s employer-managed
· Potential for higher contribution limits
· Security of income for retirement
For high-earning dentists, accounting for dental practices can help them better assess their options, and choose the most advantageous retirement plan in terms of taxes and savings. In some instances, a combination of several different retirement plans might help enhance tax breaks and boost savings, but appropriate advice and guidance must be sought from specialist dental accountants.