Optimize Your Dental Practice's Retirement Plans | SVA CPA

Retirement planning offers significant benefits for both owners and employees of a dental practice. Beyond being a tool for financial security, a well-designed retirement plan can serve as a competitive advantage in recruiting and retaining top talent while providing substantial tax benefits.

With evolving legislation like SECURE Act 2.0 reshaping the landscape, it’s important for practice owners to stay informed and proactive.

The Importance of Retirement Plans in Today's Landscape

In a competitive hiring market, dental practices must distinguish themselves to attract and retain skilled employees. A robust retirement plan is one way to achieve this. Offering a plan not only demonstrates a commitment to employees’ long-term well-being, it also positions the practice as a desirable workplace.

For practice owners, retirement plans are equally valuable. They provide a structured avenue for saving for the future while delivering immediate tax benefits. Contributions to traditional plans, for example, are tax-deductible, and the tax-deferred growth of these funds can create substantial financial advantages over time. For Roth options, contributions grow tax-free, offering flexibility during retirement.

As regulations evolve, keeping plans current ensures they meet the needs of both employees and the practice itself.

Understanding SECURE 2.0 and Its Impact

SECURE Act 2.0 introduces several changes designed to increase accessibility and participation in retirement plans. These updates present opportunities for practices to optimize their offerings.

One of the most impactful changes is the enhanced startup tax credits, which cover 100% of administrative costs (up to $5,000 annually) for the first three years of a new plan. Additionally, employers can claim a credit of up to $1,000 per employee for matching contributions, making it easier for smaller practices to offer competitive retirement benefits.

Another notable change is the introduction of expanded catch-up contributions. Starting in 2026, employees aged 60–63 can contribute 150% of the standard catch-up amount. This adjustment allows high earners and late savers to boost their retirement savings substantially.

Additionally, unused funds from 529 education plans can now be transferred to Roth IRAs tax- and penalty-free after 15 years. This flexibility encourages saving for both education and retirement goals.

Choosing the Right Plan for Your Practice

Selecting the most appropriate retirement plan depends on your practice’s unique needs, including budget, employee demographics, and growth goals. Common plan options include:

1. Starter K Plans: Starter K plans are ideal for new practices looking for a simple, cost-effective entry point into offering retirement benefits. These plans require minimal administration and feature automatic employee enrollment at 3%. Contributions are capped at $6,000 annually, with additional catch-up options available for employees over 50.
2. SIMPLE IRAs: SIMPLE IRAs offer higher contribution limits than Starter Ks—up to $16,000 annually in 2024—with required employer matching. These plans are easy to administer, as they avoid complex filings, but they have a lower contribution ceiling compared to other options.
3. 401(k) Profit Sharing Plans: For practices aiming to maximize both owner and employee contributions, 401(k) profit sharing plans are an excellent choice. These plans allow for employee deferrals, employer matches, and discretionary profit-sharing contributions. In 2024, participants can contribute up to $23,000 ($30,500 with catch-up contributions), with total contributions, including employer additions, reaching as high as $76,500.
4. Cash Balance Defined Benefit Plans: These plans are particularly appealing for practice owners nearing retirement. They allow for significantly higher contributions—sometimes over $100,000 annually—making them a powerful tool for maximizing pre-tax savings and retirement reserves.

The Benefits of Strategic Retirement Planning

To illustrate the advantages of these plans, consider the difference in outcomes between SIMPLE IRAs and 401(k) profit-sharing plans. As you can see in the chart below, the 401(k) Profit Sharing Plan allows for substantially higher contributions and tax savings compared to the SIMPLE IRA. The additional tax savings alone make the latter option worth exploring for practices with higher income or ambitious savings goals.

Offering a competitive plan also helps foster employee loyalty. Features like employer matching and automatic enrollment demonstrate an investment in employees’ futures, which can be a deciding factor for candidates evaluating job opportunities.

Taking the Next Steps

Whether you’re establishing a retirement plan for the first time or looking to optimize an existing one, a few key steps can guide the process:

1. Review Current Plans: Ensure compliance with SECURE Act 2.0 updates and assess whether your plan still aligns with your goals.
2. Model Your Options: Partner with a third-party administrator to evaluate different plan designs, considering their costs and benefits for both owners and employees.
3. Seek Professional Guidance: Collaborate with a CPA or retirement advisor to navigate the complexities of plan administration and tax implications.

Optimizing your dental practice’s retirement plan isn’t just about saving money; it’s about creating a foundation for long-term success. Whether starting fresh or enhancing an existing plan, the right choice will pay dividends for years to come.