Retirement Planning Fundamentals for Dentists

Within six years, a third of dentist owners plan to retire. But before making this leap, you need to prepare financially.

Dentistry can offer strong earning potential, but many dentists must overcome unique financial hurdles to secure a stable retirement.

According to the American Dental Education Association, the average new dentist graduates with nearly $300,000 in student loan debt, which creates a financial burden and can postpone retirement savings.

Practice management costs, which are among the operational challenges dentists face, pose an additional hurdle. Running a dental practice typically consumes a large portion of revenue in overhead expenses, including staff salaries, equipment upgrades, rent, and supplies.

However, dentists also tend to be in higher income tax brackets, earning on average $320,316 as practice owners or partners. While this indicates plenty of earning power, it requires careful tax planning to optimize retirement savings. Without a solid strategy, a large share of earnings may go to other purchases rather than building long-term wealth.

The physical demands of dentistry also highlight the importance of starting retirement planning early. 

Early planning gives you flexibility to explore different retirement vehicles, including traditional accounts and defined benefit plans. By moving forward sooner, you can merge multiple savings strategies to optimize tax breaks and contribution limits.

Basic Retirement Plan Options for Dentists

Dental professionals have several retirement plan options, each offering different benefits and considerations. Here’s a look at common plans for dental practices, starting with simpler choices and moving to more advanced solutions.

Traditional and Roth IRAs

These basic retirement accounts are often part of a dentist’s overall retirement plan.

Traditional IRA:

• Contributions are tax-deductible, lowering your current taxable income

• 2025 contribution limit: $6,500 ($7,500 if you’re 50 or above)

• Withdrawals in retirement are taxed as ordinary income

Roth IRA:

• Contributions use after-tax dollars

• Same contribution limits as traditional IRAs

• Qualified withdrawals in retirement are tax-free

• Contributions (not earnings) can be withdrawn without penalties

For dentists expecting to be in a higher tax bracket during retirement, Roth IRAs can be particularly advantageous.

SIMPLE IRA Plans

SIMPLE IRAs (Savings Incentive Match Plan for Employees) can be a strong choice for smaller practices.

In 2025, the employee contribution limit is $15,500, with a $3,500 additional catch-up for those over 50.

The employer must either:

• Match employee contributions up to 3% of compensation, or

• Provide a 2% contribution for all eligible employees

Contributions lower your taxable income.

SEP IRA Options

SEP IRAs (Simplified Employee Pension) provide higher contribution limits and flexibility:

• The contribution limit in 2025 is lesser of: 25% of compensation or $66,000

• Contributions are tax-deductible for the practice

• Good for practices with fluctuating income

• Employer makes all contributions

• Straightforward administration with lower costs

This choice can suit solo practitioners or small practices that want to maximize tax benefits.

Solo 401(k) for Independent Practitioners

For self-employed dentists or those with no full-time employees aside from a spouse, a Solo 401(k) can be a strong choice:

• 2025 contribution limits:

  • Employee contribution: $22,500 ($7,500 additional catch-up if 50+)

  • Employer contribution: Up to 25% of compensation

  • Combined maximum: $66,000 ($73,500 if 50+)

• Traditional (pre-tax) or Roth contributions

• Loan provisions for liquidity

• Higher contribution limits compared to IRAs

For dentists, the most important features of a Solo 401(k) include:

• Option to make both employer and employee contributions

• Flexibility to change contributions in response to practice performance

• Ability to borrow against your balance if needed

• Spouse participation if eligible

Each plan has its advantages. Many dentists use multiple retirement vehicles to diversify their savings and manage taxes effectively.

Advanced Retirement Strategies for High-Income Dentists

For high earners, basic retirement plans may not offer enough tax advantages or savings potential. Advanced approaches, including cash balance plans and integrated strategies, can help boost your retirement wealth and reduce tax obligations. Monitoring your practice's KPIs will help you identify the financial health necessary to implement these advanced strategies.

Cash Balance Plans: A High-Value Approach

Cash balance plans are popular among dental professionals. These hybrid plans merge features of defined benefit and defined contribution approaches, giving high-income dentists notable advantages:

• Substantial Contribution Limits: Dentists over age 60 can exceed $300,000 in annual contributions, far beyond 401(k) caps.

• Strong Tax Benefits: Contributions are tax-deductible and can allow for deferrals up to 45%.

• Defined Benefit: The plan sets a specific amount for retirement.

• Portability: You can take your account balance with you if you change jobs.

For instance, a 62-year-old earning $500,000 annually might contribute $300,000 to a cash balance plan. This move significantly lowers taxable income while fast-tracking retirement savings. Combined with profit-sharing and a 401(k), it can form a robust tax strategy.

Defined Benefit Plans: Traditional Pension-Style Options

Although cash balance plans often get the spotlight, traditional defined benefit plans can still be effective. They provide:

• Predictable retirement income based on salary and years of service

• Employer-managed investment risk

• Potential for high contribution limits

• Solid retirement income security

Differences from cash balance plans include:

• More complex benefit calculations

• Less transparent account values

• Often lower portability

• A traditional pension-style framework

Maximizing Benefits Through Plan Combinations

Combining multiple retirement plans often benefits high-income dentists by boosting tax breaks and savings potential.

For example, Dr. Johnson, a successful practice owner, sets up both a cash balance plan and a 401(k). In one year, she contributes:

• $300,000 to her cash balance plan

• $22,500 to her 401(k)

• Additional profit-sharing funds

This mix helps Dr. Johnson:

• Maximize tax-deferred savings

• Diversify her retirement income

• Maintain flexible contribution levels

• Build considerable retirement assets

If you're considering this approach, there are a number of factors to take into account. First and foremost, you'll need to think about practice profitability and cash flow to ensure that you can sustain the additional expenses. 

Additionally, you'll need to consider the ongoing commitment requirements, as well as the administrative costs associated with this approach. You should also factor in employee benefit obligations and any investment management duties that may be required.

Advanced strategies need careful coordination with financial and tax advisors who have previous experience with dentists. Over time, you can adapt your plan to changes in profit, tax laws, and your personal goals.

Practice-Wide Retirement Planning

As a practice owner, retirement benefits matter for both your own financial security and for supporting your team. For dental practices that depend on a stable staff to reinforce patient relationships, offering comprehensive retirement benefits becomes even more important.

Employee Retirement Benefits

Several employee retirement plans suit dental practices:

• 401(k) Plans: Employees can contribute pre-tax, and you can add matching contributions. This approach encourages participation and long-term saving.

• Safe Harbor 401(k): This version automatically satisfies non-discrimination testing, making it appealing for smaller practices.

• SIMPLE IRA Plans: A simpler solution for small practices, allowing both employer and employee contributions with less administrative work.

How to Implement Retirement Planning

Choosing the right financial advisor has a major impact on retirement outcomes. Look for professionals with relevant credentials (CFP or ChFC) who specifically understand dental practices. They should be familiar with practice overhead, income fluctuations, and complex tax considerations.

Your advisors should:

• Develop customized retirement strategies that include IRAs, 401(k)s, and cash balance plans

• Clarify tax implications of each approach

• Collaborate with your CPA and other specialists

• Adapt your plan as your practice changes

Meet with your advisor regularly to keep your strategy up to date. These check-ins matter most when you face significant practice transitions or changes in your personal life.

Streamline Your Practice and Secure Your Retirement with Teero

Efficient practice management is crucial for dentists aiming to build a secure retirement while running a successful practice. 

By using a dental staffing platform like Teero, you can solve your hygienist shortage and streamline hiring to instantly find qualified dental hygienists in your area. Doing so not only boosts your practice's productivity but also allows you more time to focus on your retirement planning strategies.

Give us a call to learn more about our dental hygienist staffing platform.