Orthodontist Case Study: 60% Tax Cut, Staff Covered
A fast-growing orthodontic practice with a staff in their twenties amended its 401(k) to safe-harbor status and added a cross-tested cash balance plan, lifting the owners' deductible contributions from $47,000 to $417,000 for $35,000 of employee funding.
- Published
- Updated
- Entity
- LLC
Net tax savings per year
$152,650
Reported, after $35,000 of staff funding
- Owner contributions
- $417,000
- Up from $47,000 with the 401(k) alone
- Funding to owners
- 92%
- Share of total company contributions
Annual contributions, $452,000
- Owners: 401(k) deferrals$47,000
- Owners: cash balance$370,000
- Staff: safe harbor and profit sharing$35,000
Next step
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At a glance
Figures are the ones reported for this engagement. Where the engagement did not state something, the row says so rather than estimating it.
| Owner age | 45 (orthodontist) and 44 (spouse) |
|---|---|
| Income | Not disclosed |
| Entity | Orthodontic practice (LLC) |
| Staff | Hygienists and front-desk staff aged 23 to 30; headcount not disclosed |
| Plan design | 401(k) amended to a 3% safe harbor, profit sharing on a two-to-six-year vesting schedule, plus a cross-tested cash balance plan |
| Employee cost | $35,000 a year |
| Owner contribution | $417,000 ($47,000 401(k) deferrals plus $370,000 cash balance), up from $47,000 |
| Estimated deduction | $452,000 in total plan contributions ($417,000 to the owners, $35,000 to staff) |
| Reported tax savings | $152,650 net a year, described as a 60% reduction |
| Tax-rate assumption | Not disclosed |
Challenge
An orthodontist, 45, and his spouse, 44, were growing their practice quickly. As the patient panel expanded they hired more hygienists and front-desk staff, all between 23 and 30 years old.
The practice already had a 401(k), but the cost of contributing for a growing team had become prohibitive, and it kept the owners from maximizing their own retirement savings.
Solution
The practice amended its 401(k) to add a 3% safe-harbor contribution, which let the doctors maximize their salary deferrals ($47,000 between them) without top-heavy restrictions.
It then added a cash balance pension plan. Because the owners are 15 to 20 years older than their staff, a cross-tested formula directed most of the employer contribution ($370,000) to the doctors' cash balance accounts, while the employees' contributions went to the 401(k) profit-sharing plan on a two-to-six-year vesting schedule.
Owner vs. staff funding, before and after
- Before: 401(k) only: Owners$47,000
- After: safe-harbor 401(k) + cash balance: Owners$417,000
- After: safe-harbor 401(k) + cash balance: Staff$35,000
Next step
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Outcome
The doctors' annual tax-deductible contributions rose from $47,000 to $417,000.
After an employee funding cost of $35,000, the practice reported net annual tax savings of $152,650, and 92% of total company contributions funded the owners' retirement.
The result came from a plan design built on the age difference between owners and staff, which is the main lever when a 401(k) is combined with a cash balance plan.
“Our practice is thriving, and now our retirement plan is too. The tax savings helped us invest in new state-of-the-art equipment.”
Case studies are illustrative, based on real client engagements with names and identifying details changed. Results depend on age, income, entity type, employee demographics, plan design, and federal and state tax rates, and are not a guarantee or projection of your outcome. This content is educational and is not individualized tax, legal, or investment advice — consult a qualified professional before acting.
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