You have now just outlined my questions for Tuesday's IEP meeting. Thanks for this

Always happy to have been of service!

What's the path forward if the misspellings are dysphonetic? I see a lot of this in his writing that he does at home and if I were to guess, this is what he's doing.
I'm going to speculate that he is not consistently using spelling strategies (which include segmenting down to the phoneme level, selecting appropriate graphemes according to learned rules, and sequencing them to encode the complete word). When cued, he remembers that they exist, and has the cognition to apply them accurately. Otherwise, he may be reverting to old, ineffective strategies for recalling spellings by shape or by guess. This, of course, tells us that he has not automatized the process of spelling, although he can consciously articulate the principles. It appears that he continues to need cueing to apply strategies, on a regular basis. He also needs a wider array of unknown (much higher-level, or nonsense) words on which to practice spelling strategies and phonetic encoding skills, to "force" him to use them.
Now why he does so much better on sentences...I think we don't have enough information on that, but that would be a good question to ask his teacher. What is he (or she) doing differently when dictating sentences? What about the process is cuing him more effectively? I notice that his single word spelling accuracy has grown a little bit over the year (60 to 75%), which is within the range of expectations for working on an isolated skill, but, as you point out, his accuracy for dictated sentences has grown substantially. I believe we had a discussion about a history that appears to include a remediated expressive language disability. It may be that his ongoing growth in expressive language abilities is also manifesting in his ability to take more context-rich dictation. Oral and written sentence repetition (which is what dictation is, of course) also rely on working memory (excellent, in his case) and fluent grasp of grammar and syntax. Perhaps growth in oral expressive language is feeding into sentence dictation.
I asked previously about whether he is repeating words/sentences out loud before writing them, in particular because speaking the words himself may be helping to cue him to segment the sounds, translate them to graphemes, and sequence the graphemes on paper. Sentences are long enough that he may be more inclined to rehearse them to himself, just to help remember the whole sentence. Whereas he may go straight from hearing an individual word to writing it, which skips the oral repetition that may be cueing him to apply spelling strategies.