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One trend financial advisors have observed is the increasing number of dentists who are behind on their retirement plans. Many dentists, doctors and others in medical professions, have to strike a balance between protecting their assets from lawsuits and creating a tax-efficient portfolio, according to a recent MarketWatch article. Veteran dentists and doctors, who often have not saved aggressively for retirement, seek larger tax deductions and accelerated retirement savings because they are older and are earning more money. In a cash balance retirement plan, which is a type of defined benefit plan, dentists who own their practice can make very large deductible contributions for themselves while managing the cost of employees’ benefits.

We have a client who owns a dental practice. The owner is 58 years old and pays himself $220,000 in W-2 income. The dentist pays himself $220,000 in W-2 income. He has three employees, two are in their twenties but one is over 65 years old. When the owner is younger than the employees, often the cost of contributions for employees makes the plan unattractive to business owners. In this case, because the older employee earns only $22,500, we added a Safe Harbor 401(k) to a cash balance plan, so the owner’s share of the contribution is 98% or $268, 830.