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Failure to Max-Out Retirement

Oct 30, 2025

Transcript

BARRY: Number four is failure to max out retirement. I’ll let you run with that one.

CHAD: Sure. So, when you work for a company and you’re provided with a 401(k), the IRS has their limits in terms of how much you can contribute. It just so happens that it’s $19,000 now.

But when you’re the business owner, a lot of the time you want to be putting more money away into retirement than that $19,000. So when it comes to structuring your plan, there’s different ways where you can get to much higher limits than the $19,000 limit. Whether it is using a SEP IRA, which allows you to go all the way up to $56,000. Same thing with a solo 401(k).

Or you’d use some sort of — if it’s a couple of highly compensated people in the business, you can do a 401(k) with a profit-sharing plan on top. And so you as the business owner can still put away more than the rest of the employees without — Right from the beginning, you talk about discrimination. You can kind of ignore those discrimination issues if you have these plans set up correctly.

And there’s alot of other things too. You can do cash balance plans. And I don’t want to get too technical. We could have an entire other conversation on the different retirement funding strategies for the business owner. But I think the big takeaway should be that you’re not limited to just the $19,000 that most people think they are.

Or if you are in business for yourself and you don’t have 401ks set up and you don’t have employees, many times people say, “Oh, well I’m putting money into my IRA.” Well, a regular IRA does about a third of even what a 401k can do in terms of retirement contributions. So you don’t want to be pigeonholing yourself. A lot of times it’s just due to lack of education about what options are out there in terms of retirement-funding vehicles for yourself.

BARRY: Can you mention discriminatory-non-discriminatory, and where the distinction is and maybe where the opportunities are as well?

CHAD: I’ll really explain it as a concept, because I don’t want to get too much into the weeds in terms of numbers, but there’s discrimination rules with qualified plans.

Particularly with 401k, where if you have employees, there’s only a certain amount you can contribute based on the amount that they’re contributing. So if your rank-and-file employees aren’t taking advantage of the 401k, even though you may be legally able to put up to $19,000, if there were those nondiscriminatory rules, you can severely be limited and end up contributing a lot less than that if your employees are not contributing or taking advantage of the plan.

BARRY: Can I say that differently?

CHAD: You absolutely can.

BARRY: My understanding is that if you have a SEP, for example, which is an employer-sponsored traditional IRA — we should get into IRAs in another video, too and the different ways of doing them. But if you have an employer-sponsored IRA — what’s it called, Self Employee Pension?

CHAD: Yeah.

BARRY: Got it! If you have a SEP IRA with your business, and say I pay myself 20% of my salary, which I believe is under the max, I have to, by law, give 20% of the salary of my employees to them as well.

CHAD: Correct.

BARRY: That’s the way I see it, right?

CHAD: I don’t really see too many times where if there are multiple employees that the SEP is the actual arrangement because of what you said. You have to, by law, give the same amount to the employees. Typically we’ll get into other planning arrangements — other than a SEP — when it gets more than 1 or 2 employees, because you don’t want to be putting 20% to other people’s retirement.

BARRY: Well, let me give myself a little prop here. A little plug here. With our firm, we take care of people. We really believe in people and the people on our team. Our biggest asset is our staff and our people and how we handle our customers, and I want to make sure our team is taken care of. So we do a SEP, and I make sure that what I pay myself, I pay them. Understanding those rules is very important, I must say.

CHAD: You’re a better man than most.

How Business Owners Can Max Out Retirement Savings (and Why Most Don’t)

By: Barry E. Haimo, Esq.

October 30, 2025

When you work for someone else, your retirement options are simple. You enroll in your company’s 401(k), set your contribution percentage, and maybe get a nice employer match.

As a business owner, things get a little more complicated… but also a lot more flexible.

Too many entrepreneurs assume they’re limited to the same $19,000 contribution cap (currently $23,500 as of October 2025) that applies to a traditional 401(k). But in actuality, business owners have access to strategies that can multiply those savings several times over — if their plans are set up correctly.

Here’s how to go beyond the basics and truly maximize your retirement contributions.

Look Beyond the Standard 401(k)

The traditional employee 401(k) limit may not apply if you own your business. Options like SEP IRAs and solo 401(k)s allow for significantly higher contributions. Up to $66,000 per year, depending on income and structure. These plans are designed for self-employed professionals or business owners with few (or no) employees.

A SEP IRA (Simplified Employee Pension) is easy to set up, and it’s flexible. However, it comes with one major rule: whatever percentage you contribute for yourself, you must also contribute for all eligible employees. For solo entrepreneurs, that’s great. But once you start hiring, that rule can get expensive fast.

A solo 401(k), on the other hand, lets you contribute both as the employer and the employee, which gives you more control (and often a higher cap) without having to match contributions for staff.

Consider Adding Profit Sharing or Cash Balance Plans

If you have a few highly compensated employees, a 401(k) with a profit-sharing component can be a powerful solution. It allows you, as the owner, to make larger contributions for yourself while staying compliant with “non-discrimination” rules that prevent plans from overly favoring top earners.

For owners who want to supercharge their retirement savings even further, cash balance plans (a type of defined-benefit plan) can push contribution limits well into six figures annually. These are more complex and require ongoing administration, but they’re a favorite for established business owners looking to catch up on retirement quickly.

Know the Rules Before You Break Them

Qualified retirement plans come with layers of regulation designed to ensure fairness — particularly between owners and employees. If your staff doesn’t contribute much to the 401(k), for example, “non-discrimination testing” could limit how much you can contribute for yourself.

That’s why strategic plan design is critical. A good advisor can help you structure your plan to meet IRS rules while maximizing your own savings.

Don’t Let Lack of Knowledge Limit You

Many business owners simply don’t know what’s available. They assume an IRA or small 401(k) is “good enough,” leaving thousands of untapped tax-deferred dollars on the table every year. The truth is, the IRS allows far more flexibility for entrepreneurs. But only if you take the time to plan.

The bottom line is that your retirement strategy should work as hard as you do. By coordinating your tax, legal, and financial planning, you can put away more, pay less in taxes, and protect both your business and your future.

Because when it comes to building wealth as a business owner, it’s not about how much you earn, but how much you keep. Want to learn more? Get in touch.

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