As attorneys who work closely with dentists, physicians, and optometrists, we often see practice owners postpone launching a retirement plan because of concerns about cost or administrative complexity. What many healthcare professionals do not realize is that the SECURE Act 2.0 created some of the most generous tax incentives ever offered to small practice owners. These incentives were designed to make retirement plans more accessible and more affordable for practices of all sizes.
If you are considering starting a retirement plan or upgrading an existing one, three major credits can significantly reduce your upfront and early year expenses. Below is a clear breakdown of what every practice owner should understand.
The Startup Tax Credit helps offset the administrative and setup costs of creating a new retirement plan. This is often the biggest hurdle for smaller practices, especially those still building revenue or expanding their team.
Your practice qualifies if it meets these requirements:
You have between 1 and 100 employees.
You have not maintained another retirement plan covering substantially the same employees within the last three years.
You have at least one non highly compensated employee participating.
Most dental, medical, and optometry practices meet these criteria.
Eligible practices may receive up to 5,000 dollars per year for three years. The credit covers qualified startup costs, which include:
Plan setup and configuration expenses
Administrative fees
Employee education related to the plan
The percentage covered depends on your size:
Practices with 50 or fewer employees qualify for a credit equal to 100 percent of qualified costs up to 5,000 dollars.
Practices with 51 to 100 employees qualify for a credit equal to 50 percent of costs up to 5,000 dollars.
There is also a minimum credit of 500 dollars.
For most small practices, this can dramatically reduce or completely offset the cost of establishing a retirement plan for the first three years.
Another powerful incentive under SECURE Act 2.0 is the Employer Contribution Tax Credit. This credit rewards practices that contribute to employees retirement accounts in the early years of the plan.
Any practice with up to 100 employees qualifies. The credit is especially generous for practices with 50 or fewer employees.
This credit can provide up to 1,000 dollars per eligible employee per year based on contributions made for employees who earn less than 100,000 dollars.
For practices with 50 or fewer employees, the credit phases out gradually:
100 percent of contributions in years 1 and 2
75 percent in year 3
50 percent in year 4
25 percent in year 5
For practices with 51 to 100 employees, the credit is reduced proportionately based on the number of employees above 50.
This credit is entirely separate from the Startup Tax Credit. Many practice owners can receive:
Up to 5,000 dollars annually for plan setup
Plus up to 1,000 dollars per employee for employer contributions
These combined benefits can neutralize much of the financial burden of establishing and funding a retirement plan during the early years.
Auto enrollment is an optional plan feature that automatically enrolls employees at a preset contribution rate. This feature is becoming more common because it increases employee participation and supports long term financial wellness.
To encourage adoption, the IRS provides an Auto Enrollment Tax Credit.
The credit is 500 dollars per year for three years.
Any practice that adds an auto enrollment feature qualifies. The plan does not need to be new. Practices updating an existing plan can still receive this credit.
As healthcare attorneys who advise practice owners, we want to highlight several important points that often get overlooked.
You must choose whichever option provides the greater financial benefit. For most practices, the tax credit is the better option, but this should be reviewed with your CPA.
Congress created these incentives to help small employers compete with larger organizations by lowering the financial barrier to offering high quality retirement plans.
Retirement plans require compliance with rules related to eligibility, employee notifications, nondiscrimination testing, and proper employee classification. Setting up a plan without appropriate legal guidance can expose your practice to penalties or compliance risks.
For many healthcare practices, establishing a retirement plan is now more affordable than ever. With the combination of the Startup Tax Credit, the Employer Contribution Tax Credit, and the Auto Enrollment Credit, a practice may be able to implement a retirement plan at little or no net cost during the first several years.
Beyond the tax savings, offering a retirement plan strengthens your competitive position. It helps you attract and retain high quality team members, supports employee satisfaction, and contributes to your own long term financial security.
As attorneys dedicated to protecting healthcare practices and supporting doctors in building wealth, we encourage practice owners to explore these credits and understand how they fit into your broader legal and financial strategy. If you are considering starting a retirement plan or want to review the compliance and structure of your existing plan, our team is here to help.
Q: Why should dentists, doctors, and optometrists consider starting a retirement plan now?
A: SECURE Act 2.0 provides some of the most generous tax incentives ever offered to small healthcare practices. Startup costs, employer contributions, and auto enrollment features may all qualify for substantial tax credits. For many practices, these credits significantly reduce or eliminate the cost of launching a retirement plan for the first several years.
Q: How much can my practice save with the Startup Tax Credit?
A: Eligible practices can receive up to 5,000 dollars per year for three years to offset setup, administrative, and employee education costs. Practices with 50 or fewer employees may qualify for a full 100 percent credit on qualifying expenses, making retirement plan startup costs extremely affordable.
Q: Do I need to have a large staff to qualify for the tax credits?
A: No. The credits are specifically designed for practices with 1 to 100 employees. You simply need at least one non highly compensated employee participating in the plan. Most dental, medical, and optometry practices meet this requirement easily.
Q: What qualifies as a non highly compensated employee?
A: Generally, an employee who earned less than 150,000 dollars in the previous year and is not an owner or related to an owner. This group includes most clinical and administrative team members in healthcare practices.
Q: Can I claim both the Startup Tax Credit and the Employer Contribution Credit?
A: Yes. The credits are separate. Many practice owners can receive up to 5,000 dollars annually for startup costs plus up to 1,000 dollars per eligible employee for employer contributions in the early years of the plan. This combination often makes retirement plans highly cost effective.
Q: How long does the Employer Contribution Tax Credit last?
A: Up to five years. For practices with 50 or fewer employees, contributions may be credited at 100 percent in years 1 and 2, 75 percent in year 3, 50 percent in year 4, and 25 percent in year 5.
Q: Do these tax credits apply to existing retirement plans?
A: Existing plans may qualify for the Auto Enrollment Tax Credit if you add an auto enrollment feature. This credit provides 500 dollars per year for three years, even if the plan is not new.
Q: What counts as a qualified startup cost for the credit?
A: Plan setup, administrative fees, and employee education programs paid or incurred by the employer. These include vendor onboarding costs, document preparation fees, and training sessions for staff members.
Q: Can I deduct startup costs and claim the tax credit?
A: No. You must choose either the deduction or the credit for each eligible cost. The credit is usually more financially beneficial, but you should confirm with your CPA.
Q: How do I know if my plan setup is compliant with IRS and ERISA requirements?
A: Compliance requires proper documentation, employee notifications, nondiscrimination testing, and accurate employee classification. As healthcare attorneys, we recommend legal oversight during plan formation to avoid penalties, compliance failures, or problems that may invalidate tax credits.
Q: What happens if my practice grows beyond 100 employees after starting the plan?
A: You will still receive the credits for the years in which you qualified. Growth after implementation does not disqualify you retroactively.
Q: How does auto enrollment benefit my practice beyond the credit?
A: Auto enrollment increases employee participation rates, improves long term financial wellness for your team, and signals a strong benefits culture. It can also help reduce turnover and support staff retention, especially in competitive healthcare markets.
Q: Can these credits reduce audit or legal risk for my practice?
A: Yes. Proper retirement plans demonstrate strong HR and compliance practices, which reduce risk in employee disputes, compensation issues, and regulatory audits. A well structured plan signals organizational stability and financial stewardship.
Q: What types of retirement plans qualify for these credits?
A: Most common small practice plans qualify, including 401(k) plans, SIMPLE IRAs, and SEP plans, as long as they meet IRS requirements and include at least one eligible non owner employee.
Q: How much time does it take to implement a retirement plan?
A: Most healthcare practices can establish a compliant plan within 30 to 60 days depending on the vendor and the complexity of plan features. Adding auto enrollment or matching formulas may require additional review but remains manageable with proper legal and financial guidance.
Q: Do lenders consider retirement plans when evaluating practice financing or expansion loans?
A: Many lenders favor practices with strong retention tools, and retirement plans are viewed positively in financial assessments. Stable teams reduce operational risk, which can support favorable lending decisions for acquisitions, expansions, or build outs.
Q: How do I get started with reviewing or implementing a retirement plan?
A: Begin with a consultation to determine eligibility, calculate expected tax credits, evaluate plan structures, and ensure legal compliance. Our team advises healthcare practices on plan setup, documentation, vendor selection, and compliance strategies to maximize financial benefits and reduce risk.
At Dental & Medical Counsel, PC, we understand navigating the legal process can be tricky. We believe every dentist, optometrist, and doctor deserves the best advice and service, so they can focus on what they do best: treating their patients. We make their lives easier by providing expert guidance, so they can focus on their personal and professional aspirations. We are healthcare attorneys.
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About Ali Oromchian, Esq.
Your Dental, Optometry, Healthcare Lawyer
In addition to being a healthcare lawyer for almost 20 years, Ali is also a renowned speaker throughout North America, on topics such as practice transitions, employment law, negotiation strategies, estate planning, and more! Ali has helped thousands of doctors realize their professional goals and looks forward to aiding you in navigating the legal landscape.
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