What Dentists Should Know About Retirement Planning

The average dentist doesn’t retire until nearly age 70—around 7 years later than the national average retirement age.1 Though the dental profession can be a lucrative one, many dentists don’t have the traditional 401(k) option, and selling a long-running dental practice is a bit more complex than turning in one’s two-week notice. [1]

Read on to learn more about the different types of retirement accounts that are available to dentists, as well as some factors to consider when selling or passing on your dental practice.

Retirement Accounts for Dentists

When it comes to retirement, dentists often have a few more options than the standard IRA or 401(k).

· SEP IRA: This IRA allows an employer to make contributions on their own behalf and/or for their employees. Two major benefits of an SEP IRA are the ability to continue contributing after you turn 70.5 and the ability to contribute a maximum of up to 25 percent of your net self-employment earnings, up to $61,000 for 2022.2

· SIMPLE IRA: A SIMPLE IRA is comparable to a 401(k), but provides a $14,000 contribution limit for 2022.3

· Solo, safe harbor, or Roth 401(k): These 401(k) options allow you to create your own 401(k) account on your own behalf (solo 401(k)), avoid the administrative costs of a regular 401(k) plan (safe harbor 401(k)), or fund your 401(k) with after-tax dollars (Roth 401(k)).[2]

Each of these options can provide dentists with flexibility beyond the traditional 401(k) and IRA restrictions, reducing plan fees and increasing contribution limits.

Factors to Consider When Selling Your Practice

Getting out of the dental business for good often involves selling your dental practice. There are several different factors to consider when it comes time to sell your practice, including:

· The tax laws of your state. The structure of your transaction may depend on how your state taxes the income from a business sale. It may make sense to spread the buyer’s payment across a couple of years to minimize the tax hit during the year of the sale.[3]

· Your pool of buyers. Some dental practices, particularly partnerships, may have a built-in group of potential buyers: the other partners. In other situations, selling your practice may take a bit more marketing. The interest level and financial stability of your prospective buyers may dictate how long your practice stays on the market.[4]

· Whether you need a steady source of monthly income or would prefer a clean break. In some cases, it may make more sense to enter a “rent to own” arrangement with your business’s purchaser, selling the facilities and client list in exchange for a monthly payment. On the plus side, this can reduce taxes while helping you maintain a steady income; but like any rental agreement, if the renter stops paying, you could find yourself facing financial difficulties. Some dentists prefer to make a clean break by selling their business for a lump sum.[5]

Whichever route you choose, it is important to talk this process out with your financial professional, who can help you formulate a plan that works well for your location, the state and size of your business, and your future financial needs.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. 1 https://dentistadvisors.com/education-library/podcast/dentist_retirement_statistic/ 2 https://www.irs.gov/retirement-plans/plan-participant-employee/sep-contribution-limits-including-grandfathered-sarseps 3 https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-simple-ira-contribution-limits

[1] https://aldrichadvisors.com/dental/dentists-retirement-shortfall/ [2] https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/401kplansforsmallbusinesses [3] http://marketplace.ada.org/blog/5-things-to-consider-before-selling-a-dental-practice/ [4] https://www.dentaleconomics.com/practice/real-estate/article/16384957/transitions-roundtable [5] https://www.adstransitions.com/buying/buying-options/

Sources

https://aldrichadvisors.com/dental/dentists-retirement-shortfall/

https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/401kplansforsmallbusinesses

http://marketplace.ada.org/blog/5-things-to-consider-before-selling-a-dental-practice/

https://www.dentaleconomics.com/practice/real-estate/article/16384957/transitions-roundtable https://www.adstransitions.com/buying/buying-options/

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