Dental Practice Retirement Plans: Defined Benefit, Cash Balance, Solo 401(k), and How to Stack Them

A dental practice owner in the $300,000 to $800,000 income range has access to retirement plan strategies that most small business owners never consider. The standard 401(k) contribution, even with the employer profit-sharing layer, caps at $70,000 for 2025. That is a meaningful deduction, but it is a fraction of what is available when you add a defined benefit or cash balance plan on top. The stacking strategy (a 401(k) profit-sharing plan combined with a cash balance plan) can produce total deductible contributions of $200,000 to $400,000 per year, depending on the dentist’s age and compensation. The tradeoff is complexity, mandatory funding, and employee cost, but for high-income dentists in their late 40s and 50s who need to catch up on retirement savings, the math is compelling. This guide covers each plan type, shows how they stack, explains the employee cost, and walks through the entity structure interaction that determines the contribution base.

What retirement plan options does a dental practice owner have?

A dental practice owner can choose from several plan types, and the right combination depends on the practice’s income level, number of employees, and the owner’s age and retirement timeline. The three most common starting points are the solo 401(k), the SEP IRA, and the 401(k) profit-sharing plan with cross-testing.

Solo 401(k). This plan works for practices with no employees other than the owner (and spouse). The employee deferral is $23,500 for 2025, increasing to $31,000 for owners age 50 and older (the standard catch-up) and $34,750 for owners ages 60 through 63 (the SECURE 2.0 super catch-up). On top of the deferral, the employer can contribute up to 25% of W-2 compensation (for an S-corp) or approximately 20% of net self-employment income (for a sole proprietor or partnership). The total combined limit is $70,000 for 2025 ($77,500 with the standard catch-up, $81,250 with the super catch-up). The solo 401(k) also offers a Roth deferral option and a loan provision (up to $50,000 or 50% of the vested balance). Form 5500-EZ is required once plan assets exceed $250,000. The plan must be established by December 31 for employee deferrals; employer contributions can be made until the tax filing deadline including extensions.

The limitation of the solo 401(k) is the “no employees” requirement. A dental practice with full-time hygienists, dental assistants, and front desk staff will almost certainly have employees who work more than 1,000 hours per year. Once the practice has eligible employees, the solo 401(k) no longer works, and the practice needs a standard 401(k) profit-sharing plan.

SEP IRA. The SEP is simpler to administer than a 401(k) because there are no employee deferrals, no annual testing, and no Form 5500. The employer contributes up to 25% of W-2 compensation (same $70,000 limit). The catch: if the practice has eligible employees, the practice must contribute the same percentage for every eligible employee. A dentist contributing 25% of their own $300,000 salary would also need to contribute 25% for each hygienist, assistant, and front desk employee. For a practice with $250,000 in total staff payroll, that is an additional $62,500. Most dental practices with five or more employees find the SEP IRA uneconomical compared to a 401(k) profit-sharing plan with cross-testing.

401(k) profit-sharing with cross-testing. This is the workhorse retirement plan for dental practices with employees. Cross-testing (formally, the IRC 401(a)(4) nondiscrimination testing using the “new comparability” method) allows the practice to contribute different percentages for different employee groups. The dentist-owner can receive a 25% employer contribution while staff receives 5% to 7.5%, as long as the plan passes nondiscrimination testing. The plan can include three layers: employee salary deferrals (the $23,500 to $34,750 employee deferral), a safe harbor matching contribution (typically 4% of compensation, which exempts the plan from ADP/ACP testing), and a cross-tested profit-sharing contribution (the employer contribution that is allocated differently by group). Annual administration costs run $2,000 to $5,000 for the TPA and actuary, but the tax savings on the differential contribution rate more than justify the cost.

How does a defined benefit or cash balance plan work for a dentist?

A defined benefit plan promises a specific annual retirement benefit (up to $280,000 per year for 2025, indexed for inflation), and the annual contribution is whatever the actuary determines is necessary to fund that promised benefit by retirement age. The contribution depends on the dentist’s current age, planned retirement age, the plan’s assumed rate of return, and the benefit formula. A 50-year-old dentist planning to retire at 65 might need annual contributions of $150,000 to $250,000. A 55-year-old might need $200,000 to $350,000.

The traditional defined benefit plan is powerful but carries risk. The contributions are mandatory once the plan is established, because the practice has a legal obligation to fund the promised benefit. If practice income drops in a bad year, the contribution is still required. The plan requires an enrolled actuary to calculate the annual contribution and certify the plan’s funded status. Administration costs (actuary, TPA, Form 5500) run $3,000 to $6,000 per year. Some plans are subject to Pension Benefit Guaranty Corporation (PBGC) premiums, though professional service firms with 25 or fewer participants are generally exempt.

Cash balance plans are a hybrid that has become increasingly popular with dental practices. Each participant has a hypothetical “account” that receives two annual credits: a pay credit (a dollar amount or percentage of compensation, set by the plan document) and an interest credit (typically 4% to 6% per year, guaranteed by the plan regardless of actual investment returns). The cash balance plan functions like a defined benefit plan for contribution and deduction purposes (contributions are deductible under IRC 404), but the benefit is expressed as an account balance rather than an annual pension. This makes the benefit portable and easier for participants to understand.

For dentists, the cash balance plan’s advantage over a traditional defined benefit plan is predictability. Because the interest credit is a stated rate (not market-dependent), the actuary’s annual contribution calculation is more stable. There is less risk of a surprise contribution increase caused by poor investment returns. A 50-year-old dentist might receive a $150,000 to $200,000 annual pay credit in the cash balance plan, with the exact amount set by the actuary based on the desired benefit and years to retirement.

How much can a dentist shelter by stacking a 401(k) with a cash balance plan?

The stacking strategy combines two plans: a 401(k) profit-sharing plan handles the employee deferrals and the first layer of employer contributions, and a cash balance plan handles the rest up to the defined benefit limits. The combined deduction can reach $200,000 to $400,000 per year, with the exact amount driven by the dentist’s age and W-2 compensation.

The stacking strategy works because the IRC 415 limits for defined contribution plans (the 401(k)) and defined benefit plans (the cash balance plan) are independent. Each plan has its own limit, and contributing to one does not reduce the other. The defined contribution limit for 2025 is $70,000 (plus catch-up). The defined benefit limit is an annual benefit of $280,000 at retirement, which translates to a much larger annual contribution for older participants because there are fewer years to fund the benefit.

What is the employee cost of offering a retirement plan?

The employee cost is the question that determines whether a defined benefit or cash balance plan makes economic sense. Every qualified retirement plan must pass nondiscrimination testing under IRC 401(a)(4), which means the plan cannot disproportionately benefit the owners at the expense of rank-and-file employees. The cross-testing method and the plan design can minimize the employee cost, but it cannot be eliminated entirely.

The staff cost in a cash balance plan is driven by the employees’ ages (younger employees require smaller contributions because they have more years to grow) and compensation levels. This is why cash balance plans are especially efficient for dental practices where the owner is 50+ and the staff skews younger, because the age gap maximizes the differential between the owner’s contribution and the employees’ contributions.

How does entity structure affect retirement plan contributions?

The entity structure determines the compensation base that retirement plan contributions are calculated on, and getting it wrong can cost more than the entity structure saves. For S-corp dentist-owners, the W-2 salary is the only compensation that counts for retirement plan contribution calculations. Distributions are excluded. This creates a tension: setting the salary lower reduces FICA tax (the 2.9% Medicare tax on income above the Social Security wage base), but it also reduces the retirement plan contribution ceiling.

Consider a dentist collecting $1 million with $400,000 in net income after expenses. At a $250,000 salary, the maximum employer profit-sharing contribution is $62,500 (25% of $250,000). At a $180,000 salary, the maximum is $45,000. The FICA savings from the lower salary amount to $70,000 x 2.9% = $2,030 in Medicare tax. The lost retirement plan contribution is $17,500, which at a 37% marginal rate represents $6,475 in lost tax savings. The lower salary costs the dentist $4,445 more than it saves, and that is before considering the cash balance plan, where the salary reduction would further reduce the allowable pay credit.

For sole proprietors and single-member LLC owners (not S-corps), retirement plan contributions are based on net self-employment income after the self-employment tax deduction. The effective contribution rate is approximately 20% of net SE income (not 25%, because the SE income is reduced by the deductible half of SE tax and by the contribution itself). Partnerships follow similar rules for each partner’s share of income.

The entity structure also affects which plans are available. A solo 401(k) is only available to practices with no employees other than the owner and spouse. Once the practice hires a full-time hygienist or assistant, the solo 401(k) is no longer an option, and the practice must switch to a standard 401(k) profit-sharing plan. The conversion can happen mid-year, but the timing matters for contribution calculations and testing.

What SECURE 2.0 changes matter for dental practices?

SECURE 2.0 introduced several provisions that specifically affect dental practice retirement planning, and most of them took effect in 2024 or 2025. The super catch-up contribution allows participants ages 60 through 63 to contribute $11,250 in additional catch-up (instead of the standard $7,500), bringing the total employee deferral to $34,750 for a dentist in that age window. This provision sunsets at age 64, making the four-year window between 60 and 63 the highest-contribution years for the deferral component.

The mandatory Roth catch-up for high earners requires that employees earning over $145,000 make their catch-up contributions as Roth (after-tax) rather than pre-tax, starting in 2026 (delayed from the original 2024 effective date). For most dentist-owners, this means the catch-up goes into the Roth bucket, which affects the tax benefit in the contribution year but provides tax-free growth and distributions in retirement.

Employer Roth contributions are now permitted under SECURE 2.0, meaning the practice can designate some or all of the employer profit-sharing contribution as Roth. This is a new planning tool: a dentist who expects to be in a lower bracket in retirement would continue making pre-tax contributions, while a dentist who expects similar or higher brackets (or who wants to hedge) can shift the employer side to Roth.

The student loan matching provision allows the practice to make matching contributions based on an employee’s student loan payments, treating the loan payments as if they were 401(k) deferrals. This is particularly relevant for associate dentists who are paying down $200,000 to $400,000 in dental school debt and cannot afford to make 401(k) deferrals on top of loan payments. The practice’s matching contribution on their loan payments gives them retirement savings they would not otherwise have, and the match is deductible to the practice.

Auto-enrollment is now required for new 401(k) plans established after December 29, 2022, with automatic deferral starting at 3% to 10% of compensation and increasing by 1% per year up to at least 10% (and no more than 15%). Existing plans are grandfathered. Small businesses with 10 or fewer employees, businesses less than 3 years old, and church and government plans are exempt.

What should I do next?

If your practice does not have a retirement plan, start with the solo 401(k) (if no employees) or a safe harbor 401(k) profit-sharing plan (if employees exist). If you are 45 or older and earning $300,000 or more, model the cash balance plan: the actuarial feasibility study typically costs $2,000 to $5,000 and tells you the contribution range and employee cost before you commit. If you already have a 401(k) and are maxing the profit-sharing contribution, the cash balance plan is the next layer. If you are in the 60 to 63 age window, the SECURE 2.0 super catch-up adds $11,250 per year that was not available before, so update your deferral election.

The retirement plan decision does not exist in isolation. The S-corp salary determines the contribution base, the entity structure determines which plans are available, and the staff composition determines the employee cost. Get those pieces right first, then design the plan around them.

• Dental practice entity structure, because the entity structure and S-corp salary determine the compensation base for retirement plan contributions
• Dental practice tax deductions, the other deductions that reduce taxable income alongside retirement plan contributions, and the equipment depreciation that may compete for the same cash flow
• Dental practice bookkeeping and overhead benchmarks, the overhead tracking that includes retirement plan costs as a percentage of collections
• Law firm retirement plans, the parallel retirement plan analysis for law firms, another high-income professional service business with the same SSTB limitation on QBI
• Trucking retirement planning, the parallel retirement plan analysis for owner-operators, where the solo 401(k) and SEP IRA are the primary options

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.