May 29, 2025

Here, we explain four types of Individual Retirement Accounts (IRAs): traditional, Roth, SEP, and SIMPLE IRA, and apply their relevance to small,  privately owned dental practices.

1. Traditional IRA

A Traditional IRA allows individuals to make pre-tax contributions. Investments grow tax-deferred, and distributions are taxed as ordinary income in retirement.

2025 Contribution Limits

• Up to $7,000.
  
• $8,000 if age 50 or older.
  
  

Eligibility

• Available to anyone with earned income.
  
  
• Deductibility phases out if you or your spouse are covered by another retirement plan:
  
  
  • $77,000–$87,000 (single)
  • $123,000–$143,000 (married filing jointly)
    
    

Use Case

It is best suited for solo dentists not participating in a workplace plan seeking immediate tax deductions.

Employer Cost

None. This is an individual account unrelated to staff.

Growth Over 20 Years

Contributing $7,000 annually with a 7% return could result in a balance of approximately $286,968.

2. Roth IRA

A Roth IRA is funded with after-tax dollars, and qualified withdrawals in retirement are entirely tax-free.

2025 Contribution Limits

• Up to $7,000.
  
• $8,000 if age 50 or older.
  
  

Eligibility

• Earned income required.
  
• Direct Contribution phases out at:
  
  
  • $146,000–$161,000 (single).
    
  • $230,000–$240,000 (married filing jointly).
    
    
    • NOTE: If your income exceeds this limit, you can still fund a traditional IRA and move those funds into a Roth IRA via a backdoor Roth conversion. For more info on backdoor conversions and why Roth matters for high-income earners, check out our September 2024 article, Why Roth Matters: A Guide for Dentists.
      
      

Use Case

It is appropriate for younger dentists and those who want tax-free growth and no required minimum distributions.

Employer Cost

None. Contributions are made directly by individuals and not tied to business sponsorship.

Growth Over 20 Years

With consistent contributions, a Roth IRA could also grow to about $286,968 tax-free.

3. SEP IRA (Simplified Employee Pension)

A SEP IRA allows employers to make retirement contributions to their own accounts and those of eligible employees. Contributions are entirely employer-funded and must be the same percentage of pay for each eligible individual.

2025 Contribution Limits

• Up to 25% of compensation, max $69,000
  
  

Eligibility

Employees must be included if they:

• Are 21 or older.
  
• Earned at least $750 in 2025.
  
• Worked in 3 of the past 5 years.
  
  

Use Case

While SEP IRAs are appealing for their high contribution ceiling, they are typically most appropriate for solo practice owners or practices with no eligible employees. The equal-percentage requirement makes them financially inefficient for team-based practices.

Cost Example

If a dentist earning $240,000 contributes 25% ($60,000) and has six staff members earning $50,000 each:

• Team cost: $50,000 × 25% × 6 = $75,000.
• Total annual cost = $135,000.
  
  

Growth Over 20 Years

At maximum funding, the SEP IRA could grow to approximately $2,828,689, though this is generally only feasible in a solo or spouse-only scenario.

4. SIMPLE IRA (Savings Incentive Match Plan for Employees)

A SIMPLE IRA allows employer and employee contributions and is specifically designed for small businesses with 100 or fewer employees.

2025 Contribution Limits

• Employee deferral: up to $16,000.
• Catch-up: additional $3,500 (age 50+).

Employer contribution- Either:

• Match up to 3% of compensation
• Flat 2% for all eligible employees

Eligibility

Employees are eligible if they:

• Earned at least $5,000 in any two previous years.
• Are expected to earn $5,000 in the current year.
  
  

Use Case

Well-suited for dental practices with 5–8 employees who want to offer a straightforward retirement benefit with manageable costs and minimal administration.

Cost Example

For seven staff earning $60,000 each:

• 3% match = $12,600 total employer cost.
• Owner match = $7,200.
• Total annual cost = $19,800.
  
  

Growth Over 20 Years

With maximum employee contributions, the SIMPLE IRA could grow to approximately $655,928.

Did you make it all the way to the end? See, it wasn't as bad as it sounded! IRAs are just one part of a multi-faceted retirement strategy. Always check with your advisor before making any investment moves.

Not sure where to start? Contact us today!