Retirement Plans for Dentists: Drilling down your options

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In addition to providing for your own retirement needs, a qualified retirement plan also offers valuable tax savings for the dental practice, and can help attract and retain quality employees. The good news is that you don’t need to invest in a complicated plan. There are several retirement plans that actually look, act and feel like a traditional 401(k) plan —without the cost and complexity. This is not an all-inclusive list, but is intended to discuss a couple of the more popular plans for dental practices. 
 

SIMPLE IRA

A Savings Incentive Match Plan for Employees (SIMPLE) IRA is a good start-up plan for small dental practices that do not currently sponsor a retirement plan. You agree to match up to 3 percent of an employee’s salary dollar-for-dollar or make a 2 percent non-elective contribution for each eligible employee. If the employee contributes 2 percent of salary, the practice matches that 2 percent. If an employee contributes 10 percent, the practice is only on the hook for the 3 percent match. 
 
Pros: 
 
Affordable to set up and maintain — Just use the forms provided by the IRS, set up the plan and notify your employees. You may be eligible for a tax credit of up to $500 per year for each of the first three years for the cost of starting the plan.  Administrative costs are minimal, and no annual IRS reporting is required. 
 
Matching contributions are deductible — Money you put in for employees is deductible as a business expense. 
 
Employees have control of their retirement savings — Employees can terminate their salary reduction contributions, and may roll over their funds to a traditional IRA or another employer’s retirement plan at any time. 
 
Cons:
 
Contributions are mandatory — As the employer, you are required to make contributions to your employee’s accounts each year — even if the practice is having a lean year. You can choose whether to make a matching contribution up to 3 percent of salary or a 2 percent non-elective contribution for each eligible employee. You must give written notice of the funding percentage annually to each participant no later than 120 days after the plan year ends. You can also reduce the matching percentage, but not below 1 percent, and not for greater than 2 out of every 5 years. 
 
Employer contribution limits  could be lower — The maximum contribution amount for an employee is $12,500 for 2016  — quite a bit lower than other retirement plans. Employees older than 50, can make an additional $3,000 catch-up contribution each year Employers are limited to the amount of contributions discussed above. 
 
There is a deadline for opening — SIMPLE IRA accounts must be opened by October 1 in order to make contributions for that tax year.
 

SEP IRA

A Simplified Employee Pension (SEP) IRA is a good choice for solo practitioners or those with just a few employees. Contributions are paid directly into an IRA created for each employee, and the same investment, distribution and rollover rules as a traditional IRA apply. Contributions to a SEP are tax deductible, and the practice pays no taxes on the earnings on the investments. The employee is also free to supplement the SEP-IRA with another retirement plan. 
 
Pros:
 
Easy set-up and maintenance — Just like a SIMPLE IRA, set up is simple and fees are minimal. In addition, there are no annual filing requirements with the IRS.
 
Larger employer contributions are possible — The practice may contribute up to the lesser of $53,000 (2015-2016) or 25 percent of compensation for each  participant. 
 
You don’t have to contribute every year — You are not locked into making annual contributions. In fact, you decide each year whether, and how much, to contribute to your employees’ SEP-IRAs. 
 
Cons:
 
The employer makes all of the contributions — Unlike a SIMPLE IRA, where part of the contribution can be taken out of employees’ salary, a SEP IRA requires the employer to make 100 percent of the contributions.
 
Contribution percentage must be the same for everyone — You cannot pay yourself a higher contribution percentage than your employees.
 
All employees must be included if they meet minimum requirements — This can be expensive as the practice grows and you start adding employees. 
 
 
Dental professionals often neglect retirement savings while building their practice. Yet, building a nest egg for yourself and your employees doesn’t have to be complicated or expensive. 
 
We can help recommend, based on your retirement goals and other factors, what type of plan would be best suited for your practice.
SKR+CO FIRM Expert
DR Admin