Pod Insights Masters in Business At The Money: How to Max Out Your Small Business Retirement Plan About this episode Are you running a small business or “side hustle” that generates real income? You may not be taking full advantage of the many retirement savings plans available.
'At The Money', Barry speaks with Dan LaRosa, Director of Corporate Retirement Plans at Ritholtz Wealth Management, overseeing more than $400 million in various plans. He is a Qualified Plan Financial Consultant (QPFC) and Accredited Investment Fiduciary (AIF) and partner at the firm. They discuss how individuals can maximize their tax-deferred savings through various qualified accounts.
Each week, “At the Money” discusses an important topic in money management. From portfolio construction to taxes and cutting down on fees, join Barry Ritholtz to learn the best ways to put your money to work.
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0:00 Speaker 00 At Brookfield, we believe you can own wealth that's measured in generations. Because true ownership looks beyond today and beyond cycles. For 125 years, we've built long-term wealth through expertise, discipline, and a clear vision for the future. Providing investors access to alternative strategies built for what's next. Brookfield. Own what's next. Learn more at Brookfield.com/own. This is not an offer to sell or investment advice. Investing involves risks, including loss of capital. Past performance is not indicative nor a guarantee of future results. Please review performance and offering materials before investing.
0:38 Speaker 01 This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.
1:21 Speaker 01 But according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.
2:01 Speaker 02 Small businesses are the pulse of every community. They bring people together, create opportunities and drive growth. Chase for Business helps business owners like you with personalized guidance and convenient digital tools all in one place. With that guidance and your determination, you can take your business farther and help build a brighter future for your community. Learn more at chase.com/business. Chase for Business: Make More of What's Yours. The Chase mobile app is available for select mobile devices. Message and data rates may apply. JPMorgan Chase Bank, N.A., member FDIC. Copyright 2026 JPMorgan Chase & Company.
3:05 Barry Ritholtz? Saving for retirement is challenging, especially if you're a small business owner or solo practitioner. Various retirement plans like SEP, Solo Ks, mega backdoor Roths can really be confusing. There are so many choices, the options have increased, and the rules have become even more complex. To help us unpack all of this and what it means for your retirement portfolio, let's bring in Dan LaRosa. He is an expert in corporate qualified retirement accounts, working with clients all over the country. Full disclosure, Dan runs the Corporate Retirement Planning Group at the Ritholtz Wealth Management, my firm, and he's one of my partners. So, Dan, let's start basic.
3:49 Barry Ritholtz? What options exist for either solo or small business owners if they want to save more money for retirement on a tax-deferred basis?
4:01 Speaker 04 Sure, the main options, or at least the options that you'll more likely than not start with, are a SEP IRA or a solo 401K. A lot of people default to a SEP, even if you're in a situation where the solo K might actually be a better option. The SEP is just simpler and it's often the first thing that your CPA is going to mention to you or recommend. Solo 401K with a mega backdoor Roth feature has also gotten more popular in recent years. And once you have one of those in place, if you're still looking for more tax deferral opportunities, a defined benefit cash balance plan might be a good fit.
4:38 Barry Ritholtz? Really, really interesting. Now, last time when we talked about mega backdoor Roth, the total you can contribute if you're working for a firm is $72,000. But these days, so many people have side hustles, they set up an LLC or a little company to do something, and maybe they're a solo practitioner, maybe it's a husband and wife, and this is income beyond what their regular paycheck is. If you maxed out your mega backdoor Roth at your regular employer and you have this side gig, how much can you add above that $72,000?
5:17 Speaker 04 Yeah, a lot of people don't realize this, but each plan has its own $72,000 limit. The only thing that aggregates across all plans is the $24,500 employee deferral limit. That's the amount of money that each of us can contribute to our 401K plan. But each plan has a $72,000 limit. So what you can do, if you have a side hustle or a solo gig, you can set up a solo 401K with a mega backdoor Roth, or even just a regular solo K or SEP. As long as your income is high enough, you can make additional contributions into that retirement plan of up to $72,000.
5:59 Barry Ritholtz? And how do they figure out the $72,000? Is that based on over $145,000 or $150,000 a year? Or is there a percentage calculation? Where does that $72,000 number come from?
6:12 Speaker 04 Yeah, the $72,000 number is just the overall 401K limit, or retirement plan limit. The SEP actually has the same limit. But how to get there is a bit of a loaded question, and it's different for each of those plans. So... The SEP, the SEP IRA is technically all employer contributions. So your contribution amounts are directly tied to your earnings. All right, so you can contribute up to 20% of your net income to get to that $72,000 number. All right, so you do the math. You need an income of $360,000 to max out and get to that $72,000. All right, the solo K, only a portion of your contribution is tied to your income.
6:57 Speaker 04 So you can contribute a lot more on a lower income. All right, an income of about 235, 240,000 will get you to that $72,000 max. The mega backdoor Roth, it's a bit of a cheat code. If you have, as long as your income, as long as your net income is $72,000, you can contribute all of that into the solo 401K.
7:23 Barry Ritholtz? What are the trade offs between the SEP IRA, the solo 401K, the solo mega backdoor Roth? It sounds like this is really complex. Are there any advantages or disadvantages to each of these?
7:39 Speaker 04 Yeah, it is complex. And that's why a lot of people just kind of default to a SEP because it's easier. But it really depends on your income and your objectives. If your income is on the lower side, or maybe it varies from year to year, the solo K is going to certainly allow the most flexibility and let you maximize your contribution even in those lower income years. If Roth contributions are the objective, you just can't beat the solo K with the mega backdoor Roth. It's gonna, again, allow you to contribute up to 72,000 in Roth contributions. You can't find that anywhere else. But if your income is consistently high and Roth is not a priority,
8:20 Speaker 04 you just want to maximize your tax deferrals, then a SEP is gonna get the job done.
8:25 Barry Ritholtz? So if you're making 100 or less, or 250 or more, or a million or more, that may affect which of these you choose?
8:35 Speaker 04 Yeah, for sure. And again, assuming, let's work with the assumption that you want to maximize your contributions. You want to contribute as much as you can. The lower your income is, the more powerful the solo 401k is, right? You're just gonna have a lot more flexibility with your contributions. And the higher your income goes, you're fine with a SEP, because that 20% of your net income, if your income is high enough, again, over 350, 360, you're going to be putting 70,000 plus away a year.
9:04 Barry Ritholtz? Really intriguing. How do you count an employee if you're solo 401k? It doesn't matter if you're 1099, or W2, or part-time, or spouse, a husband and wife own a small business? Who counts as an employee for these?
9:20 Speaker 04 The solo 401k is easy. So, once you have a W2 employee that becomes eligible, it's no longer a solo K, and it's going to be hard for the owner to max out without contributions to that employee. The SEP is a little bit different. Eligibility requirement is referred to of the three of five rule. So, once you have an employee that's worked three out of any five years earning more than something, I don't know, I think 700 or 750 dollars, they're eligible. And that means they would receive the same percentage of compensation that you're giving yourself. So, that could get expensive in a hurry. As far as a spouse being classified as an employee,
10:02 Speaker 04 you can have your spouse in the solo K and still run the solo K. You're not going to be disqualified. Your spouse counts as another owner. Also, a lot of people don't realize that a solo K can have multiple partners in it. Right? So, in other words, if a company has four different partners, you can have all four partners and each of the spouses in the solo K. As long as no, as long as there are no non-owner employees, you're good to go.
10:34 Barry Ritholtz? And that's 72,000 per person, husband and wife?
10:38 Speaker 04 Per person. Again, assuming the income allows for it, but yes.
10:42 Barry Ritholtz? Really, really intriguing. Man.
10:46 Barry Ritholtz? Let's talk about the administration and compliance burdens of these various options. I know you need plan documents and then there's the infamous Form 5500 and there are all sorts of record-keeping rules. What do small businesses have to know? How do they avoid getting tripped up by all of this?
11:06 Speaker 04 Yeah, SEP is the easiest for sure. It's just a few forms to set up and there's no annual maintenance, no filings. Owner just needs to track their contributions. With the solo 401K, there is a little more. And the biggest thing is once the plan reaches a total of $250,000 in total plan assets on December 31st of any plan year, a Form 5500 easy must be filed, alright? That's basically the tax return for the plan. It's a really simple form, but the penalties are insane. It's $250 a day, up to $150,000. So, for a very long time, this really wasn't regulated,
11:51 Speaker 04 but in recent years, we've actually really seen an uptick in enforcement of these penalties. So, shouldn't prevent you from setting up a solo K, but it's very important to be aware of this when you set the plan up.
12:02 Barry Ritholtz? So, let's talk setup and funding. When do these plans need to be set up and funded by? You know, we're recording this in February of 2026. Is it too late to set something up and funded for 2025? What are the options? What does the timing look like?
12:21 Speaker 04 Yeah, no, you still have plenty of time. The SEP is an IRA, so just like any other IRA, it's always been able to be established and funded for a prior year. You have until tax filing plus extension to get that plan funded. Effective, I believe effective last year, the solo K got a lot more lenient. And kind of follows that same path as the SEP. So you can establish a solo K and fund it for the prior year with some caveats. If the plan is set up by April 15th, let's say for this year, the plan is set up by April 15th of 2026. You can make employee and employer profit sharing contributions.
13:03 Speaker 04 So you can get to that full 72,000 as long as you fund by the extended filing deadline of October 15th of this year. Right? If you can, if you set the plan after April 15th of this year, you can only make your employer contributions, your profit sharing contributions to it. So you're going to be a little more limited to how much you can fund.
13:24 Barry Ritholtz? Let's talk about succession planning or exit planning or with a husband and wife, the death of a spouse. Are there any one structure superior to others? If the owner either expects to sell the business or retire or maybe even bring in partners? Which is the most flexible here?
13:44 Speaker 04 The solo K is always going to give you more flexibility than the SEP. You know, if there's multiple partners in the solo K, they can each contribute different amounts or some not at all. And the SEP contributions are pro rata, so everyone has to get the same percentage of comp. So obviously not ideal if there are going to be multiple partners or people with different goals involved. On the other hand, SEPs are just structurally a lot simpler, easier to unwind if necessary. So it really, one isn't always going to be better than the other. It really depends on the situation.
14:17 Barry Ritholtz? So one of the advantages of 401ks is the creditor and ERISA protections. Even if you lose litigation, nobody can take your retirement money away. Do the same things apply to the SEP or solo 401ks? Is it really the same set of rules?
14:36 Speaker 04 Yeah, so what you're talking about with 401ks is that additional ERISA protection. So ERISA plans, which are your employer 401ks and defined benefit plans, have the most creditor protection of all qualified plans. It is a common misconception that solo Ks, because they are 401ks, also have this enhanced creditor protection. They do not. Because they don't cover any non-owner employees, they don't have, they don't qualify for that extra ERISA protection. So SEPs and solo Ks are on the same level in terms of creditor protection, the same as a regular IRA. If you are in a litigious profession and that protection is important, might be a good idea to roll some of those IRA or solo K balances
15:21 Speaker 04 into your employer 401k or defined benefit plan if you have one available.
15:26 Barry Ritholtz? That is really interesting. I would imagine doctors or I remember back in the day brokers used to get sued on a regular basis. So that, that seems to be worthwhile. Last question. So if you have a business owner that's married, whether or not the spouse works for them in the business, can that spouse also open either a solo 401k or SEP or mega backdoor Roth 401k and legitimately increase the household contribution, assuming the revenue allows for it?
16:07 Speaker 04 Yeah, as long as your spouse is a legitimate employee of your solo practice, you can do that. And it has tremendous benefits. But they have to be an employee on payroll, receiving wages, right? Solo K allows you to contribute a lot even on a low income, right? So a spouse would be able to actually contribute 100% of their compensation up to that 24 and a half thousand, or if you're over 50, 32 and a half, right? So that ends up quickly. It's an easy way to kind of supercharge your household savings is adding your spouse to your. Solo practice retirement plan.
16:48 Barry Ritholtz? Huh, really, all this stuff is so intriguing and it's just another tool in the toolbox to wrap up. If you're a small business owner or solo practitioner and you haven't taken advantage of the various tax-deferred retirement savings plan, whether it's a SEP, a solo 401k, a mega backdoor Roth 401k, speak to your, fill in the blank, financial advisor, accountant, tax professional, and get hopping on this. This is an enormous way to accumulate wealth over the next 10 or 20 years and have various options of whether this goes in
17:31 Barry Ritholtz? pre-tax or post-tax that allows you to maximize your long-term returns. I'm Barry Ritholtz, you're listening to Bloomberg's At the Money.
17:58 Speaker 00 At Brookfield, we believe you can own wealth that's measured in generations because true ownership looks beyond today and beyond cycles. For 125 years, we've built long-term wealth through expertise, discipline, and a clear vision for the future, providing investors access to alternative strategies built for what's next. Brookfield. Own what's next. Learn more at Brookfield.com/own. This is not an offer to sell or investment advice. Investing involves risks, including loss of capital. Past performance is not indicative nor a guarantee of future results. Please review performance and offering materials before investing.
18:37 Speaker 01 This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting
19:19 Speaker 01 and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.
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