We receive many questions from new dentists about whether they should save for retirement or pay off existing student loans. While each situation is unique, we do always try to accommodate early retirement saving as much as possible. If you start early, you not only get in the good habit of contributing toward savings and retirement, but you have so many years for your contributions to grow. With that said, many new dentists are unsure of their options to save for retirement. Here are some of these options.
- Traditional or Roth IRA. An IRA is an “individual retirement account” that everyone under age 70 1/2 can contribute to in every year they have “earned income.” If you are working and getting paid for it, you have earned income. In 2019, most individuals can contribute up to $6,000 into an IRA. Whether you can contribute to a Roth IRA is dependent on your income. For a single person in 2019, you can fully contribute to a Roth IRA if your income (technically, your modified adjusted gross income) is below $122,000.
- SIMPLE IRA or 401(k) plan. If you are working as an employee or own your own practice, you may have the option to contribute to retirement through vehicles like a SIMPLE IRA or 401(k)/Profit Sharing Plan. If your employer offers a 401(k) plan, you can contribute from your wages up to $19,000 per year into the retirement plan. In addition, your employer will often be required to make a contribution to the plan on your behalf. This type of contribution is invaluable as it is really “free money” from your employer. A SIMPLE IRA works in a similar way except that you are limited to contributing/deferring $13,000 from your wages and your employer is required to contribute a certain percentage on your behalf.
- SEP IRA. A SEP IRA provides business owners with a simplified way to contribute to their employees’ retirement as well as their own. It is a great option for an independent contractor who is a sole proprietor or has incorporated with no other employees. The employer is required to contribute the same percentage to each eligible employee; therefore, if you would like to contribute 25 percent of your wages to the plan and you have other employees, you would be required to also contribute 25 percent of their wages for them as well.
- Solo 401(k). Similar to the above 401(k) option, a solo 401(k) is unique to the independent contractor who is a sole proprietor or has incorporated.
~Megan Mathers, Mathers Law & Tax Services