In a recent survey, under 35% of small business owners stated they’d offer their employees a retirement plan. Based on that number, offering a quality retirement plan can help ensure your dental practice attracts solid staff members who value this key benefit.
Before you choose a plan, consider the following factors:
- Your personal retirement goals
- Your practice’s size and growth plans/expectations
- Your current financial situation
Then, review the subsequent types of retirement solutions — you may find one that best fits your practice.
In a traditional 401(k), a dental practice’s employees have the option of contributing to the plan using a portion of their salary each pay period. Employers may or may not match this nontaxable amount.
One advantage of this common retirement plan is flexibility. Employees can contribute a percentage of their choosing and can opt for hardship withdrawals from the 401(k) under certain circumstances. It also lowers your practice’s taxable income, which makes your end-of-the-year tax bill less of a burden.
Safe Harbor 401(k)
Similar to the conventional 401(k) plan, the Safe Harbor 401(k) works through employee contributions and optional employer-matched contributions. However, this plan requires that employer contributions are fully vested, regardless of whether it’s a matched contribution.
Employers must provide all plan-eligible employees with information yearly, including their rights and obligations under the plan and how they can make a deferral to their account.
This plan is a good option for dental practices because it requires that all employee contributions are matched by employer contributions up to 3% of their income. Moreover, it doesn’t require certain key 401(k) discrimination tests and expenses.
If you’re a dental practice owner with no employees, a solo 401(k) could be a good retirement plan for you.
This one-participant plan covers only the owner or only the owner and their spouse. Otherwise, it follows the same requirements and restrictions as a traditional 401(k). Additionally, if your spouse works with you at the practice, you both can contribute to the plan and maximize your practice’s contribution up to 20% of your earnings.
Simplified Employee Pension Individual Retirement Account (SEP IRA)
As of 2022, this type of retirement plan allows business owners to defer up to $61,000 (or 25%) of a qualified employee’s salary to retirement savings.
Qualified employees must be at least 21 years old, must work full time at the practice, must receive at least $650 in annual compensation and must have worked at the practice for three out of the past five years (minimum). Only the employer can make contributions to a SEP-IRA.
Savings Incentive Match Plan for Employees Individual Retirement Account (SIMPLE IRA)
The SIMPLE IRA is another employer-sponsored plan that businesses frequently offer.
Employees can make tax-deductible contributions to the plan. Meanwhile, employers can match up to 3% of their staff’s salary or make nonelective contributions of 2% to each eligible employee, regardless of their participation.
To be eligible, you must have 100 or fewer employees at your dental practice. Additionally, each employee must be on track to earn at least $5,000 in eligible compensation this year and must have earned that amount in any two previous calendar years.
Savings Incentive Match Plan for Employees (SIMPLE 401(k))
This plan combines the traditional 401(k) and the SIMPLE IRA plans, and only practices with no more than 100 employees can use it.
Like with the SIMPLE IRA, eligible employees must be on track to make at least $5,000 this calendar year and must have earned that amount in any previous two calendar years.
As with a traditional 401(k), you can allow your employees to borrow from the account during times of economic hardship.
With a SIMPLE 401(k), employers must make contributions to the account of either a matching amount up to 3% of employees’ pay or a nonelective contribution of 2% of pay.
Profit Sharing Plans
Profit-sharing plans often supplement traditional retirement plans set up by dental or medical practices. These plans give employees a share in the profits based on small contributions from the practice to their 401k. Under this type of plan, employees receive a percentage of the profits earned quarterly or annually.
One benefit of profit-sharing is that it gives the employees a sense of ownership and motivation, and can inspire employees to work better together toward the same goals. This in turn can enhance patient experience and the overall success of the practice.
Additionally, companies that offer profit-sharing have the option of adjusting the plan as needed year after year.
Educate Your Employees
No matter which retirement plan you choose for your dental practice, make sure you’re transparent about the selected plan. You should also educate your employees to make the plan as beneficial as possible to all involved.
Additionally, ensure your employees feel well-educated about their retirement plan and how they can access it. Offer them access to the best resources for further information. If they have questions, direct them to the appropriate HR or plan sponsor for individualized advice.
[Related: The Importance of Healthcare Accounting]
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