If you’re a dentist running your own practice, chances are you’ve asked this question before:
What’s the best way to save for retirement and get a lower tax bill?
Between managing your team and investing in new equipment, retirement planning often ends up on the back burner. But here’s the thing, your retirement plan isn’t just about your future. It’s also one of the most effective tools you have for reducing your tax bill today.
The right plan can help you put away more money for the long term while lowering your taxable income each year. The key is choosing a structure that fits your income level, team size and personal goals.
We’ll run through the main options below so you can see how they can work for dentists or dental practice owners.
How Retirement Plans Help Dentists Lower Taxes
For most dentists, taxes are one of their biggest expenses. Retirement plans give you a legal and smart way to shift money from the IRS to your own pocket, by turning taxable income into long-term savings.
When you contribute to a qualified retirement plan, that money is deducted from your taxable income. It grows tax-deferred until retirement, meaning you don’t pay taxes on the earnings each year. Since most dentists are in high tax brackets during their working years, those deductions can translate into thousands of dollars saved annually.
Every dollar you put into your retirement plan is one less dollar taxed at your highest rate, and that can add up very quickly over time.
The Right Plan Depends On Your Practice
No two dental practices are identical, and neither are their retirement needs. The best plan for a solo practitioner with one assistant looks very different from a multi-location practice with a dozen employees.
When evaluating your options, here are some questions you need to ask yourself:
- How much do you want to save each year?
- Do you have employees, and do you want to contribute on their behalf?
- How consistent is your cash flow?
- How comfortable are you with paperwork and plan administration?
Let’s look at the most common plans dentists use and how they compare.
SEP IRA
A SEP IRA is one of the simplest and most flexible retirement plans for small business owners. It’s easy to set up and has generous contribution limits of up to 25% of your compensation or $70,000 for 2025, whichever is lower.
You can decide how much to contribute each year or even skip a year if cash flow is tight. The main catch? If you have employees who qualify, you’ll need to contribute the same percentage for them as you do for yourself. That’s fine for smaller teams, but it can get expensive as your staff grows.
For solo dentists or practices with very few employees, a SEP IRA offers a great balance of flexibility, simplicity, and tax savings.
SIMPLE IRA
If you have a small team and want to offer employees a way to save for their own retirement, a SIMPLE IRA might be worth considering. It allows employees to make salary deferrals while you, as the employer, contribute a small match or flat percentage, usually 2 to 3%.
It’s inexpensive and easy to manage, but the contribution limits are lower than in other plans. For 2025, employees can defer up to $16,500, and if they are age 50 or older, they can make an additional catch-up contribution of $3,500, bringing their total to $20,000.
Also, under SECURE 2.0, participants aged 60 to 63 may qualify for a “super” catch-up in 2025 for SIMPLE plans of up to $5,250 in catch-up contributions, if the plan allows it.
This plan works well for practices that want to encourage savings without taking on a lot of administrative work.
Solo 401(k)
If you’re a solo practitioner, or if your only employee is your spouse, a Solo 401(k) can be one of the most powerful ways to save for retirement while lowering your tax bill. It’s designed specifically for business owners with no full-time employees, giving you the ability to contribute as both the employer and the employee.
That dual role is what makes this plan so flexible. As the employee, you can defer up to $23,500 of your income in 2025. If you’re age 50 or older, you can make an additional $7,500 catch-up contribution, bringing your total elective deferral to $31,000. On top of that, as the employer, you can contribute up to 25% of your compensation, up to a combined total of $70,000 in 2025, or $77,500 if you qualify for the catch-up.
A Solo 401(k) lets you move a large portion of your income out of the taxable category and into your own retirement savings each year. You can choose between traditional, pre-tax contributions to reduce your current-year tax bill or Roth contributions, if you’d prefer to pay taxes now and enjoy tax-free withdrawals later.
A Solo 401(k) takes a bit more effort to set up than a SEP IRA but the higher contribution limits often make it worthwhile, especially for dentists with strong earnings and predictable cash flow.
Many practice owners start here in their early years before transitioning to more advanced plans, like a cash balance plan, once their team and income grow.
Cash Balance Plan
Once your practice is well-established and generating strong profits, a cash balance plan can take your tax savings to the next level.
This plan functions like a traditional pension where you commit to contributing a set amount based on your income and age each year. Those contributions are tax-deductible and the limits can be extremely high. Some dentists are able to contribute well into six figures annually.
As these plans are more complex and require actuarial work, they’re best suited for practices with steady cash flow and owners who want to “catch up” on retirement savings, while dramatically lowering their taxable income.
Combining Plans For Maximum Savings
Many dentists layer multiple plans to maximize deductions. For example, you might have a 401(k) for yourself and your team, then add a cash balance plan on top for additional contributions. The combination allows you to put away significantly more each year while keeping your effective tax rate lower.
An experienced CPA or financial planner can model different scenarios to show how much you’d save under each setup and tell you what to watch out for.
For example, some cash balance or defined benefit plans require consistent annual contributions, even during slower years. Others, like SEPs, can become costly once your team grows, since you’re required to contribute for eligible staff.
We’ll Help You Build The Right Plan
The best plan for you is one that you can sustain comfortably over many years. It’s best to start with your personal financial goals and work with your CPA and financial planner to find the plan that delivers the biggest long-term benefit for both your practice and your personal finances.
At Core Advisors, we provide holistic financial planning for dentists and dental practice owners.
As CPAs, we handle accounting and tax planning for your practice.
As CFPs, we work with dentists on retirement planning and wealth management strategies for the future.
Book a call with us to explore retirement strategies that do double duty: building wealth for your future while lowering taxes today.
Until next time!
