Dentist Retirement Planning

Why is Early Preparation for Retirement Important?

Preparation is the key to a secure financial future post-career. When you have a plan that you constantly work towards, there is no doubt you will experience growth and create stability. When you have a plan early on, it also helps you know how to deal with issues or challenges if they arise. Staying proactive about something you can’t see right away will pay off once you retire or transition your business. 

Consider putting a fixed amount of your income into a retirement account, which we will discuss next, so you know you will have stable finances to cover your needs when you choose to retire. 

What Exactly is a Retirement Account?

A retirement account is a type of savings account that you put money into and use after you retire when you are no longer making an income. While you are working, you can set aside a portion of your income to put into the retirement account, so you are simultaneously building your steady income and money to use after retirement. Your savings will start compounding interest, growing your money more each year, and creating sustainability for yourself. 

Retirement Plan Options 

To start a retirement plan, you have to know and understand the kinds of options out there. Not every dentist has the same approach or exact needs when it comes to their practice and how they choose to plan their retirement. 

Finding a plan that works for you is essential. Consider working with a financial professional to figure out which of these best suits your needs. 

401(k) Plans

A 401(k) plan is an employer-sponsored way to contribute to a retirement account. As an employee, you can choose how much of your salary you want to defer to this account and your employer will match and contribute a portion of their own. There are two main types of 401(k) plans: a Traditional 401(k) and a Roth 401(k). The main difference in these plans is that a traditional will use pre-tax dollars for contributions and a Roth will use after-tax dollars. 

IRA Plans

An IRA account can be set up individually without an employer, as long as you are earning income. This is usually done through a financial institution. With an IRA, you are not able to contribute as much of your salary to it, but you have more investment options. The two main types of IRAs are the same as a 401(k). 

• Traditional = Pre-tax (withdrawals are susceptible to income tax)
• Roth = After-tax (withdrawals are not affected by income tax)

You can also consider opening a simple IRA account if you work in a smaller company. The fourth type of IRA will be discussed below. 

Simplified Employee Pension (SEP) IRA

This IRA is ideal for those who are self-employed/own a dental practice. It is an easy way to grow tax-advantaged savings for yourself and your employees. It is similar to a traditional IRA but allows larger contributions. 

Profit Sharing Plan

This is similar to a 401(k) but allows employees to earn a share of the company’s profits and add it to their retirement account. The company decides how much they want to contribute and this helps keep everyone motivated. The employer can also deduct up to 25% of the company’s profits for tax purposes.

Health Savings Account

Medical bills are one of the most common expenses for individuals after they retire. Having a health savings account allows you to have money set aside specifically for medical needs. This account is best to have when used in conjunction with an IRA or 401(k) plan. 

How to Transition Your Dental Practice 

Now that we’ve discussed retirement options, let’s take a look at the other side: transitioning your business to someone else. 

If you have a dental practice, you are likely going to hand it off to a different owner once you retire. Like planning for retirement, you shouldn’t wait until you are ready to transition to plan for it. Creating a business transition plan is essential for a smooth and seamless move. Some essential steps include: 

• Value Improvement: If you want to sell your business, you want to ensure it is of great value. Look for opportunities to grow relationships, products, and services, or anything else that will enhance its value. It will attract more when trying to sell and help you achieve serious money. 
• Merger and Acquisition: You need to decide if you want to merge your company with another or give the company complete ownership. Both can be a complex process, but if it is written out in detail, then you will have clear communication with everyone and have assets valued at their true worth. 
• Sale and Transaction: Be smart and diligent about who you sell your business to and ensure the offer reflects the worth before making a decision. The right buyer should align with your goals. 
• Succession Planning: This includes developing action plans for those moving into leadership roles and positions. This is an effective way to streamline the business you passed on so it can continue growing. 
• Estate Planning: Estate planning is important in case anything were to happen to you. It’s a plan to know how to transition business management, distribute assets, and provide financial security for loved ones. 

You should utilize assistance from a professional for all of these steps to make the right decisions that align with your goals, comply with legal requirements, and simplify the process. 

How Cooper Norman Can Help You Plan For Transition and Retirement 

At Cooper Norman, we understand all that goes into planning a successful transition into retirement. Whether you need help finding the right retirement account or assistance passing your dental practice to someone else, we have the expertise and experience to set you up successfully toward your goals. Contact us today to give you and your loved ones a promising future. Now is the time to start.