A dentist earning $400,000 per year who contributes $70,000 annually to a SEP IRA saves approximately $25,900 in federal taxes (at 37%) and accumulates $70,000 in tax-deferred retirement assets every year. Over 20 years, assuming 7% annual growth, that's approximately $2.9 million in retirement savings from the retirement plan alone—savings built almost entirely with money that would have otherwise gone to the IRS.
Now imagine a dentist over 45 using a defined benefit plan instead of a SEP IRA—contributing $200,000 per year. The tax savings jump to $74,000 annually. Over 15 years, the retirement accumulation is staggering. This is why the retirement plan choice is the single most important financial decision a dental practice owner makes. This guide walks through every major option, with real numbers, so you can make the right choice for your situation.
Key Takeaways
- SEP IRA: Simplest option; up to $70,000 deductible contribution in 2025; no employee contributions allowed
- Solo 401(k): Best for solo practices; allows both employee and employer contributions; higher effective limits with catch-up
- Defined Benefit Plan: Best for dentists over 40 with high, stable income; can shelter $100,000–$275,000+ per year from taxes
- Cash Balance Plan: Hybrid DB/DC plan; more flexible than traditional DB; allows large contributions while employees can participate
- Combination strategies: Pairing a DB or cash balance plan with a 401(k) can maximize total contributions dramatically
- Starting earlier is dramatically better — the compound growth on tax-deferred retirement assets is the real wealth multiplier
Table of Contents
SEP IRA: The Simple Starting Point
The SEP (Simplified Employee Pension) IRA is the most straightforward retirement plan for dental practice owners. It requires minimal administration, can be opened in a matter of days, and allows contributions up to the day you file your tax return (including extensions).
SEP IRA Key Facts for 2025
- Maximum contribution: Lesser of 25% of net self-employment income (or 25% of W-2 wages for S-Corp) or $70,000
- Employee contributions: Not allowed; only the employer (you) contributes
- Establishment deadline: Tax filing deadline including extensions (September 15 for S-Corps, October 15 for individuals)
- Contribution deadline: Tax filing deadline including extensions
- Employees: If you have eligible employees, you must contribute the same percentage of their compensation as you contribute for yourself
SEP IRA Tax Savings Example
A solo dentist with $300,000 in net income contributes $70,000 to a SEP IRA (approximately 23% of income, within the 25% limit). At a 37% federal rate, this saves $25,900 in federal income tax. Adjusted for the self-employment tax deduction, the effective savings is approximately $23,000–$26,000 per year. The $70,000 grows tax-deferred until withdrawal.
When SEP IRA Isn't the Best Choice
SEP IRAs don't allow Roth contributions or employee contributions (which means employees must receive the same percentage contribution as you). For high-income dentists who want to maximize contributions, the Solo 401(k) or defined benefit plan will typically allow higher total contributions and greater flexibility.
Solo 401(k): More Flexibility, Higher Limits
The Solo 401(k) (also called a self-employed 401(k) or individual 401(k)) is available to dental practice owners with no full-time employees other than a spouse. It allows contributions in two separate buckets: employee deferrals and employer contributions.
Solo 401(k) Key Facts for 2025
- Employee deferral limit: $23,500 (plus $7,500 catch-up if age 50+)
- Employer contribution limit: Up to 25% of W-2 wages (S-Corp) or 25% of net self-employment income
- Total combined limit: $70,000 (or $77,500 with catch-up)
- Roth option: Available; employee deferrals can be Roth (no tax deduction now, tax-free withdrawals later)
- Establishment deadline: December 31 of the year you want contributions to apply
- Loan provision: Many Solo 401(k) plans allow loans from the account
The Solo 401(k)'s advantage over the SEP IRA: a dentist with lower income can contribute more via the employee deferral component. For example, a dentist with only $80,000 in W-2 wages from their S-Corp can contribute $23,500 in employee deferrals plus $20,000 in employer contributions = $43,500 total, significantly more than the SEP IRA limit of $20,000 (25% of $80,000).
Defined Benefit Plan: The Power Move for High Earners
For high-income dentists over 40, the defined benefit (DB) plan is the most powerful tax tool available. A DB plan funds a specific retirement benefit, and the actuarially calculated contribution needed to fund that benefit can be dramatically higher than any defined contribution plan limit.
How Defined Benefit Plans Work
You work with an actuary to define a target retirement benefit (e.g., $250,000 per year starting at age 65). The actuary calculates how much must be contributed each year to fund that benefit by your target retirement age, based on your age, expected years until retirement, and assumed investment returns. The older you are and the shorter your runway to retirement, the higher the required contribution—and the higher your annual tax deduction.
DB Plan Contribution Ranges for Dentists
- Age 45, 20 years to retirement: Annual contribution approximately $50,000–$120,000
- Age 50, 15 years to retirement: Annual contribution approximately $100,000–$200,000
- Age 55, 10 years to retirement: Annual contribution approximately $150,000–$275,000+
Every dollar contributed to the DB plan is deductible in the year of contribution. A dentist making $200,000 in annual contributions at a 37% effective rate saves $74,000 per year in federal income taxes. Over 10 years, that's $740,000 in tax savings—plus the investment growth on $2M in retirement assets.
The defined benefit plan is frequently the most impactful single recommendation I make to dentists over 45 with stable, high income. The challenge is that many accountants and financial advisors either don't know about it or don't specialize in setting it up. A DB plan requires an actuary, an annual actuarial valuation, and careful maintenance. But for a dentist saving $60,000 to $100,000 per year in taxes, the setup cost of a few thousand dollars is trivial.
Cash Balance Plans: The Modern Hybrid
Cash balance plans are a variation of defined benefit plans that have become increasingly popular for dental practices. They look more like a defined contribution plan (each participant has a notional account balance) but are technically defined benefit plans. Key advantages:
- Employees can participate (unlike Solo 401(k)s), making them viable for larger dental practices
- Contributions are typically lower for employees than with traditional DB plans
- Accounts are portable—when employees leave, their balance can roll over to an IRA
- The practice owner can often contribute $100,000 to $300,000+ per year
- Often combined with a 401(k) plan for maximum total contributions
A dentist with a group practice who combines a cash balance plan with a 401(k) can potentially shelter $200,000 to $350,000+ per year from income taxes. This is increasingly popular among dental practice owners in their 50s who are aggressively trying to catch up on retirement savings while minimizing taxes in their peak earning years.
Side-by-Side Plan Comparison
| Plan Type | Max Annual Contribution | Best For | Admin Complexity |
|---|---|---|---|
| SEP IRA | $70,000 | Solo practices, any age | Very Low |
| Solo 401(k) | $70,000 ($77,500 with catch-up) | Solo practices, under 50 | Low |
| Defined Benefit | $100,000–$275,000+ | Solo practices, over 45, high income | High (actuary required) |
| Cash Balance | $100,000–$300,000+ | Group practices, over 45 | High (actuary required) |
The Path to $1M+: What It Actually Takes
Let's look at two dentists, both earning $350,000 per year in net income, starting at age 40:
Dentist A: No Retirement Plan
- Annual taxes: approximately $124,000 (federal + SE)
- Annual retirement savings: $0 from tax-advantaged accounts
- After-tax wealth at 65 from salary: limited to after-tax savings
Dentist B: Maximizes SEP IRA ($70,000/year)
- Annual tax savings: approximately $25,900 per year
- Annual retirement contribution: $70,000
- After 25 years at 7% growth: approximately $4.7 million in the retirement account
- Total tax savings over 25 years: approximately $647,500
Dentist C: Implements Defined Benefit Plan at Age 45 ($175,000/year)
- Annual tax savings: approximately $64,750 per year (at 37%)
- Annual retirement contribution: $175,000
- After 20 years at 7% growth: approximately $7.2 million in the retirement account
- Total tax savings over 20 years: approximately $1.3 million
The differences are staggering. Dentist C ends up with approximately $2.5 million more in retirement assets than Dentist B, and approximately $7+ million more than Dentist A. All while paying significantly less in taxes every year. This is why the retirement plan choice is the highest-leverage financial decision a dental practice owner can make. For the complete picture of how these strategies fit into a total dental tax optimization approach, see our guide on why dentists overpay taxes.
When to Upgrade Your Plan
Here's a simple framework for when to consider upgrading your retirement plan:
- Under 40, solo practice: SEP IRA is usually sufficient. Focus on maximizing contributions and building the practice.
- Under 40, with employees: SIMPLE IRA or 401(k) with employer match. Keep costs manageable while growing the team.
- 40–50, solo or small practice: Solo 401(k) or consider adding a defined benefit plan. This is when the DB plan starts to become very attractive.
- 50+, high income: Defined benefit or cash balance plan, often combined with a 401(k). Maximize everything. These are your peak earning years and the catch-up contribution window.
- 5–10 years from retirement: Aggressive DB or cash balance plan contributions. The actuarial math works in your favor when the runway is short.
The right plan for your situation depends on your age, income stability, number of employees, and retirement timeline. Work with a financial advisor and tax strategist who specifically understands dental practice finances. A generalist advisor will typically under-recommend these powerful strategies. For context on how these retirement plans fit into the broader picture of dental practice tax planning, see our guide on tax planning strategies for small businesses.
Frequently Asked Questions
What is the best retirement plan for a dental practice owner?
It depends on age, income, and whether you have employees. For solo practices or owners under 40, a SEP IRA or Solo 401(k) works well. For high-income dentists over 40 with stable income, a defined benefit or cash balance plan can allow contributions of $100,000 to $275,000+ per year and dramatically accelerates retirement savings.
How much can a dentist contribute to a SEP IRA in 2025?
In 2025, a dentist can contribute up to 25% of their net self-employment income or $70,000, whichever is less, to a SEP IRA. For an S-Corp dentist, the limit is 25% of their W-2 wages from the practice. Contributions are tax-deductible and grow tax-deferred.
What is a defined benefit plan and how does it help dentists?
A defined benefit plan is a retirement plan that funds a specific future benefit (like a defined monthly pension). For high-income dentists over 45, the actuarially calculated contribution needed to fund that benefit can be $150,000 to $275,000+ per year—all tax-deductible. This is the most powerful tax deduction available to high-income professionals.
The Bottom Line
A dentist who consistently maximizes the right retirement plan throughout their career can retire with $1M to $3M more than a dentist who doesn't, while paying significantly less in taxes along the way. The strategy isn't complicated—but it requires the right plan, the right timing, and a tax advisor who knows how to implement it.
About the Author
Tom Woolley, MBA
Tom Woolley is a fractional CFO who has spent 11+ years helping business owners take control of their finances. He works with contractors, dental and medical practices, and professional service firms across the country.
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