How Much Should a Dentist Spend and Save?

I was wondering how much one actually spends each year. It has nothing to do with what you make really.

I’m going to start a defined benefit plan to dump some money so Obama can’t tax it and you have to commit to some serious change for contributions. Unlike profit sharing, you have to make the contributions.

I looked at the budget categories in the computer program… Quicken….and it totals what was spent in the year. I backed out fed and state income tax and it appears I spend about 100K. 

Do you have an idea what someone actually needs for spending? If you have any mortgages or payments, separate that for this exercise……

A novel approach to saving was the thought that taxes probably are going up (this lecture was a few years ago) and that it might be a good idea to not have a 401K or other retirement plan, but to go ahead and pay the taxes now because he predicted that taxes would be rising.

I hear this theory quite a lot. It’s really a matter of opinion. What we know is this: we have a progressive tax system. Meaning, the more you make the more tax you pay. Our current tax brackets are 0, 10, 15, 25, 28, 33, and 35.

Therefore, the income that we can defer now will likely be deferred at the highest tax brackets (28,33,35).

I too believe taxes will go up; however, again, it’s the usually the highest brackets that get bumped. The lower brackets MAY get adjusted slightly.

When one retires they usually have several pots of money to draw from:

1. Social security (if it’s still around)

2. Taxable funds (your retirement plans)

3. Non-taxable funds (your accumulated after-tax investments, homes, etc.).

Therefore, when you use money from those pots, you’re using them in the lower brackets first and in my experience with my retired clients, we’ve had great success in managing the distribution of those funds from the second and third pots to “maximize” the lower brackets (to avoid reaching into the middle or higher brackets).

So in my opinion, even with rising tax rates, most doctors will still be deferring when they are in the higher brackets (33,33 so to be 35, 40, maybe higher) and have the ability to tax at the lower brackets (0, 10, 15, 25). The theory of deferring still makes sense.

By the way, this doesn’t even consider the impact of payroll taxes, meaning, monies contributed to a PS or DB plan AVOID the payroll tax hit. Even if it’s just Medicare AND when used in retirement years, there’s no payroll tax to pay.

Also consider that many folks work and defer in states WITH taxes and will potentially move to states without taxes. For example, I have clients here in MD that deferred income and saved the 8% MD tax rate, move to FL to retire and are avoiding that 8% tax on the deferred money.

This first appeared on Dentaltown.

Send your questions to Tim Lott, CPA, CVA at

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