Owning a dental practice can be very lucrative, but achieving financial success is not an easy road for dentists.

According to the American Dental Association, dentists graduate with about $261,000 in student loan debt, compared with about $183,000 of debt for doctors. Even as your dental practice grows and generates more income, repaying your loans can be a drain on your personal after-tax cash flow and your ability to save money efficiently for a comfortable retirement.

A properly designed 401(k) plan can help you save for retirement on a tax-favored basis and reduce your tax bill today.

"Plan Design" refers to using retirement plan law to achieve specific financial outcomes for the practice owner(s). It’s no secret that contributions to retirement plans are tax favored.

Efficient plan design deals with maximizing tax-deductible contributions and maximizing the percentage of all discretionary contributions going into the account(s) of the dental practice owner(s).

Understanding Your 401(k) Money Sources

It’s important for dental practice owners to understand the various potential sources of contributions to a defined contribution retirement plan.

An Employee Elective Deferral is money each individual, including practice owners, chooses to have deducted from their paycheck (2017 limit is $18,000). As the practice owner, you will want to defer the maximum amount as this reduces the amount of taxes withheld from your paycheck.

The Employee Catch-Up Deferral states that folks aged 50 or older are allowed to contribute an additional $6,000 annually in addition to the $18,000 for a total contribution of $24,000 for 2017.

An Employer Discretionary Match gives dental practice owners the ability to offer discretionary matching contributions from year-to-year, or they can “lock in” a fixed match that will be made based on some formula. Matching contributions are deductible business expenses.

The Employer Safe Harbor Contribution allows dental practice owners to make one of two types of safe harbor contributions. This is important for plans that fail nondiscrimination tests. These contributions are deductible business expenses and allow the practice owner and any other highly compensated employees to maximize their elective deferrals.

Employer Profit Sharing is completely discretionary. Dental practice owners choose each year, after the close of the fiscal year, if they would like to fund this bucket, how much and ideally, to whom to give profit sharing contributions. Profit sharing contributions are deductible business expenses.

Benefits of a Customized Approach

There are countless firms offering cookie-cutter 401(k) plans where “one size fits all.” Here at ACG, we take a different approach in working with dental practice owners.

Proper plan design focuses on maximizing tax-deductible company contributions for practice owners. There are a number of ways to legally ensure that the practice owner receives the maximum benefit from both company and personal contributions. Optimum plan design leads to the largest current tax breaks and maximum retirement benefits.

This results in a 401(k) plan design specifically tailored to your dental practice. We understand the ins and outs of 401(k) plan design based on our years of experience in designing plans for dental practices large and small.

Beyond the 401(k)

While a customized 401(k) plan is often the right vehicle for dental practice owners, we look at each situation individually. Sometimes other approaches, either in combination with the 401(k) or in addition to it are appropriate. One common example is the use of a defined benefit pension plan.

The ACG difference

Many financial advisors and retirement plan providers use a cookie-cutter approach when suggesting a retirement plan for dental practice owners. You wouldn’t accept this when buying a home or car; you want certain options and features that tailor these experiences to your needs and preferences.

We take the same approach in designing the appropriate retirement plan solution for you and your dental practice.

Our approach includes: 

• A customized plan design to maximize the amount contributed to the practice owner’s account to maximize your retirement benefits.
• We provide ongoing administrative and compliance support. Our idea of a dedicated team isn’t a call center.
• Our team at ACG knows our clients and their employees know us by name. We are here to respond to any questions on a timely basis no matter how involved those questions may be.
• We provide the leadership our clients need to feel confident that their retirement plan is providing the maximum possible benefits to them and their employees.

Access our newest, complimentary eBook, Tools to Help Dentists Save Thousands in Tax Dollars, to see what a customized approach to solving your practice’s 401(k) plan needs feels like. We think you will be pleasantly surprised.