By: Dr. James Pitts
One of the best benefits that Dentists have are Qualified Retirement Plans. Qualified Retirement Plans are saving vehicles blessed by the IRS. They come in many varieties but are in two major categories.
Individual Retirement Accounts
The first category is Individual Plans. These include Individual Retirement accounts or IRAs. A Dentist can save money either pre-tax in a traditional IRA or after-tax in a ROTH IRA.
Traditional IRA
The Traditional IRA gives a Dentist tax savings on the amount saved upfront and the account grows tax deferred for many years. Once the money is taken out after 59 ยฝ, it is taxable.ย
ROTH IRA
The ROTH IRA doesnโt produce tax savings when you fund the account.ย However, the account grows tax-free. When ROTH funds are taken out, also past 59 ยฝ, the entire account is tax-free.ย Every Dentist should have an IRA.ย ย
Work Based Retirement Plans
The other category of Retirement Plans is work based. These plans include SIMPLEs, SEPs, 401Ks and other more complex plans.
Letโs discover how each of these plans can be used in a Dental practice.
The SIMPLE Plan
First, we will review the SIMPLE Plan.ย This plan allows a Dentist and eligible staff members to defer a portion of their salaries, either pre-tax or ROTH.ย When the salary deferral is done pre-tax, it saves on income tax.ย This type of account grows tax-deferred for many years.ย
The SIMPLE also has a 2% or 3% Corporate Match feature for any participating employee.ย For 2025, any Dentist in a SIMPLE plan can contribute salary deferral of up to $16,500 and receive a 3% Corporate Match.ย The SIMPLE has no setup costs and no ongoing administrative costs. ย
Itโs a great plan for a Dental Office starting out or wanting to keep costs at a minimum.
The SEP Plan
The SEP Plan has limited use in Dentistry.ย Due to high employee costs, it only makes sense for Dentists who have no employees.ย If a Dentist is an Independent Contractor and is paid 1099 wages and has no paid employees, this Plan could work.ย
SEPs can allow significant tax savings.
401k
The more robust and widely used work-based retirement plans are 401ks.ย These types of plans come in many sizes, shapes and forms.ย Most Dental Practices are โsoldโ a 401k Plan. The plans are one size fits all.ย This is the wrong way to pick a plan.ย
The best type of 401k Plan for a Dental Office is one thatโs custom designed to the demographics of the Dental Practice. In other words, the plan is designed to take advantage of the number of employees, their ages, their hire dates and their salaries. ย
All this information is gathered and compared to the Dentistโs information.ย The Plan is created to give the owner Dentist the largest benefit with the least amount of employee and administrative costs.ย Only then can a 401k truly work best for the Dentist.
3 Parts of 401k Plans
401k Plans have three different parts.
1. Salary Deferral
The first part is salary deferral. This amount can be either pre-tax or ROTH. In 2025, the amount of salary deferral can be up to $23,500 plus a โcatch upโ amount if you are over 50 years of age. The pre-tax deferral gives the Dentist a huge income tax savings.
2. Safe Harbor Corporate Match
The second part of the 401k is the โSafe Harbor Corporate Matchโ. This match is given to any eligible employee. The amount of the match is typically 3% to 4% of salary.
3. Profit Sharing
The final part of the 401k is profit sharing.ย This portion of the plan is discretionary.ย If you are having a good year of collections and you will be paying a lot of tax, you can choose to fund this part.ย If on the other hand, you have a tight year, there is no obligation to fund profit sharing.ย The profit sharing portion is funded entirely by the employer.ย
One interesting feature of profit sharing is vesting.ย There can be a vesting schedule of up to 6 years.ย Vesting creates an incentive for employees to stay with the practice.ย The longer the employee stays, the more profit sharing money they get to keep.ย Profit sharing can produce extremely large tax savings for the Dentist when used correctly.
The 401k Plan can be used to great advantage for the Dentist. Tax savings, retirement planning and long-term asset growth are some of the many benefits. A custom designed plan can make a huge difference in the long term financial success of the Dentist.
Defined Benefit Plans
As Dentists get older and their practices grow in production, they may have need for even more tax savings. Defined Benefit Plans allow for tremendous income tax savings for the right Dental practice. Defined Benefit Plans come in several varieties. A common type currently is the Cash Balance Plan. These plans allow Dentists to save extremely large amounts of money in a short time for retirement, get huge tax savings and even can help in transition planning.
Due to the complexity of the plans, they are beyond the scope of this article. If any Dentist would like more information on Defined Benefit Plans, 401Ks or any other type of Retirement Plan, please contact Dr. James Pitts at (727)686-4068 or james.pitts@jwcemail.com.
In Conclusion
The proper choice of the right retirement plan is critical. The correct plan can help propel Dentists to achieve their financial goals and retire comfortably.
Dr. James Pitts is a licensed Financial Advisor and Registered Investment Advisor Representative with Professional Financial Strategies. He previously practiced Dentistry for 26 years in Florida. Dr. Pitts sold his Dental practice and retired Financially Independent and Debt Free at the age of 51. His passion for the last 14 years has been to help Dentists achieve their financial and business goals.
For more information, contact Dr. James Pitts of Professional Financial Strategies at (727) 686-4068.
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Photo by Artem Podrez
