When it comes to planning for early retirement in your fifties or earlier instead of in your sixties, the sooner you start, the better. It is essential, though, to explore the different options available to you before deciding on one. You can research the best retirement plans for dentists and consider how these might provide a desirable income in your retirement years and affect you on the tax front.
The importance of having a retirement savings plan
Many people make the mistake of thinking that they can rely on their Social Security monthly benefit payment or Medicare after they retire. However, these might not be enough to support you in the lifestyle that you are accustomed to and pay for medical care. The same goes for allocating a portion of your current dental income toward your retirement goal. That is why it is essential to review the best retirement plans for dentists and invest in one or more of them.
By contributing to these retirement savings plans, you can look forward to a reasonably secure future and also avail of various tax advantages. Given how important it is to have a retirement savings plan, it is advisable to do your research and consult an experienced financial professional.
Things to consider before getting a retirement savings plan
• Identify your retirement goals and the type of lifestyle you want to have after retiring. Perhaps you want to retire to a beach or mountain resort area, travel the world, or move closer to your extended family. Whatever your plan, it is essential to be financially prepared to realize it. So, you will need to figure out how much income you will need.
• Consider your current financial situation and how much money you can safely invest in a retirement savings plan and other investment options. If you experience hardships in the future, will you have the finances to tide you over?
• Choose a proper retirement savings plan that can grow your invested money fast and offers several tax advantages.
Best retirement plans for dentists
Let us explore some of the best retirement plans for dentists:
Traditional 401(k)
A traditional retirement option, the 401(k) is a profit-sharing plan that employers can sponsor. Employees contribute a specific amount of their pre-tax salary to individual retirement accounts. If you are a self-employed dentist, you can open a solo 401(k). The money gets invested in various mutual funds, and you can withdraw the money after you turn 59 and a half. The contributions that you can make to a 401(k) plan are tax-deductible up to an annual limit. You may have to pay taxes on the investment earnings when you withdraw them after retirement.
SIMPLE IRA
If you have a small dental practice, you might want to consider a Savings Incentive Match Plan for Employees (SIMPLE) IRA. You can get the forms from the IRS website, set up the plan by the October 1 deadline, and let your employees know about it. Contributing to the plan up to a specified sum every year is mandatory for you as an employer, and the contribution is voluntary for your employees.
You can match up to three percent of the salary your employees get. So, even if the employee decides to contribute not less than one percent and up to five percent to the SIMPLE IRA, you only need to make a three percent match. Your matching contribution is deductible as a business expense. Your employee is free to stop contributing to the plan and switch to another employer’s retirement plan.
SEP IRA
A Simplified Employee Pension (SEP) IRA is a retirement savings plan that you can consider if you are a solo dental practitioner or have very few employees. There is no deadline to set up this retirement savings plan. However, only the employer can contribute to a SEP IRA. Your contribution has to be up to 25 percent of your net earnings up to the specified limit and 25 percent of your salary for your employees. The percentage has to be the same for both. You can decide how much to contribute and it is not necessary to contribute to the SEP Ira every year. Your contributions will be tax-deductible.