Financial Planning for Dentists: 5 Steps to Grow Assets Rapidly Despite the Debt

Dentists often get a late start on financial milestones due to the time commitment and ridiculously high cost of dental school. Because of this and other contributing factors, the average dentist isn’t able to retire until age 68 — putting them several years behind the average American. But with intentional financial planning, dentists can create the life they want at all stages of their careers.

How is financial planning different for dentists?

Most Americans struggle with finances. But dentists have unique challenges that make it more difficult to continue flying financially blind. For example, many dentists are practice owners who are responsible not only for their own financial success but for the livelihood of their staff. 

Even if you’re on your own as a dentist, you’re still dealing with crippling student debt and competing priorities that can delay your dreams, such as owning a home, starting a family, building a practice or retiring early.

Smart financial planning for dentists can give you a clear financial picture for both your personal and dental career goals.

Grow wealth and financial security first before tackling dental school loans

If you’re juggling huge amounts of student debt, you might think you need to pay it off. But instead try getting it on a plan like SAVE while you focus on growing wealth and financial security first. 

If you aren’t taking an active role in your finances or working with someone who can do the heavy lifting on your behalf, you could be making costly mistakes. For example, you might have been told the best route for dentists is to pay off student loans as fast as possible, sometimes at the detriment of pursuing your dreams.

When in reality, you can take a holistic approach to your finances that allows you to live comfortably while working toward your goals. Basic financial planning for dentists includes:

• Learning to balance your high dentist salary. This means choosing to live within your means and sticking to a realistic budget that accounts for your personal and professional goals.
• Tackling dental student loan debt with a clear strategy. The new SAVE plan offers many benefits for dentists, including valuable interest subsidies, loan forgiveness after 20 to 25 years of repayment, and monthly payments based on 5% to 10% of your discretionary income. But it isn’t the only option, or necessarily the right option, for every dentist.
• Reducing your tax burden with creative solutions. As a dentist in a high tax bracket, you don’t want to pay more in taxes than needed. Take advantage of all tax deductions and strategies, including tax-loss harvesting, the Augusta Rule and the Section 179 deduction. Additionally, claim other standard deductions for dentists, such as the home office and mortgage interest deductions.

Having a firm grasp on your regular finances will allow you to also plan for long-term financial decisions.

Key parts of a long-term financial plan for dentists

A smart financial plan centers around making meaningful progress toward what matters most to you. Whether that’s buying your first home, putting your kids through college or finding ways to cut back on hours or retire early entirely, small steps can make big financial waves.

Saving for retirement

Many dental professionals mistakenly underestimate the power of saving and investing early in their careers, thereby, missing out on valuable compound interest. The sooner you start saving, the more time your money has to grow.

Dentists can generally take advantage of the following types of retirement accounts and strategies:

• 401(k). Whether you’re an associate dentist or a practice owner with W-2 employees, contributions made to a traditional 401(k) are made with pre-tax dollars. Additionally, earnings accrue on a tax-deferred basis. The 2024 employee contribution limit is $23,000 ($69,000 for combined employee and employer contributions).
• Traditional IRA. Anyone can contribute to a Traditional IRA as there are no income limits. The 2024 contribution limit is $7,000, with an additional $1,000 for those age 50 and older.
• Roth IRA. Roth IRAs allow for tax-free withdrawals in retirement as contributions are made with after-tax dollars. However, this type of retirement account is subject to income limits. For 2024, single taxpayers have an income phase-out range of $146,000 to $161.000. Married filing jointly taxpayers have a phase-out of $230,000 to $240,000.  That said, you can complete a backdoor Roth IRA to sidestep these income limits.

If you’re planning to retire in your 50s or earlier, consider throwing money into a low-cost taxable brokerage account.

Additionally, dental practice owners can look into the benefits and requirements for advanced retirement planning strategies, such as profit-sharing plans and defined benefit plans.

Buying a home

Dentists can take advantage of DDS/DMD mortgage options with 0% to 10% down and no private mortgage insurance (PMI) requirement.

This type of special financing recognizes that in order to achieve the high income that comes with being a dentist, you also generally have to take on high amounts of student debt. Unlike conventional mortgages, your student debt will receive more favorable treatment. You can also access higher home loan amounts without triggering a jumbo loan interest rate increase.

If owning a home is on your list of major financial goals, then a dentist mortgage can fast-track your home-buying timeline by dodging a large down payment requirement and strict underwriting guidelines.

Building practice equity

Owning a dental practice can provide a great return on investment. Whether you plan to start your own practice from the ground up or purchase an existing practice, you’ll have the option to sell it when you’re ready to retire.

But buying, managing and selling a practice are separate elements of financial planning for dentists that require significant consideration and guidance for the best outcome.

Diversifying income

There are a lot of ways to earn extra money as a dentist or through an alternative interest, such as:

• Moonlighting. If you’re willing to continue trading your time for dollars, then working a secondary job in your spare hours can really pay off.
• Investing. Throwing money into the stock market can feel scary when you already have six-figure student loan debt. But long-term investing can give you passive income that can shave off a decade or more of working years to reach retirement.
• Buying real estate. A lot of dentists and other healthcare professionals love dipping their toes in real estate ventures. But it comes with a learning curve and can wind up causing more work if you’re actively managing properties. You’ll likely benefit from finding a mentor and doing extensive research before diving in.
• Selling your knowledge and experience. Consider ways to train or coach other dentists, whether by creating an online course or offering consulting services focused on practice ownership.

Having multiple streams of income gives you greater financial security and the ability to save and invest more. Plus, it can provide flexibility to pivot in your career later down the road.

Mitigating risk

As a high-income earner, dentists are often targeted by commission-based agents and financial advisors selling costly investment and insurance products. But don’t make the mistake of not carrying certain types of insurance for fear of working with the wrong person, or “throwing away good money”.

One of your most valuable assets is your ability to work and earn substantial lifetime earnings as a dentist. This is why disability insurance with dental specialty coverage should be a priority.

Beyond that, consider term life insurance (skip the cost and complex nature of a whole life policy) and other types of protection for your family and business.

Get professional, fiduciary help for every stage of your dental career

Dentists often have complex finances, especially if you own a practice where you’re not only the practicing clinician but also responsible for many facets of the business. But even if you’re just starting out, dealing with large amounts of student debt and knowing where and how to dedicate your time and money can be overwhelming. Having a solid financial plan can give you clear direction for each phase of your career.

That’s where dentist-specific fiduciary financial planning with SLP Wealth can push you forward in your financial journey with confidence and peace of mind.

Our CERTIFIED FINANCIAL PLANNERS® specialize in working with dentists with high student debt to achieve their dreams. This includes everything from reaching financial independence before traditional retirement age to thriving as a dentistry business owner. Reach out today to learn more about our financial planning and wealth management services.