At The Money: How to Max Out Your Small Business Retirement Plan

Summary

Masters in Business – At The Money: How to Max Out Your Small Business Retirement Plan
Podcast Host: Barry Ritholtz (Bloomberg)
Guest: Dan LaRosa, Corporate Retirement Planning Group, Ritholtz Wealth Management
Date: April 29, 2026

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Episode Overview

This episode dives deep into the increasingly complex world of small business retirement savings, specifically focusing on how small business owners, solo practitioners, and side hustlers can optimize and “max out” their tax-advantaged retirement plans. Barry Ritholtz and his partner, Dan LaRosa, unpack the pros and cons of SEP IRAs, Solo 401(k)s (with and without the Mega Backdoor Roth option), and defined benefit plans—demystifying contribution limits, eligibility, compliance, and strategic use for both business owners and their spouses. If you run your own shop or earn side income, this is your blueprint for turbocharging long-term wealth.

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Key Discussion Points and Insights

1. Core Retirement Plan Options for Small Businesses

• Primary Tools: SEP IRA, Solo 401(k), Solo 401(k) with Mega Backdoor Roth, and Defined Benefit (Cash Balance) plans.
• Plan Selection Drivers: Simplicity, flexibility, contribution limits, and whether your income is steady/high or fluctuates.

“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 your CPA is going to mention to you.” – Dan LaRosa (03:23)

2. Contribution Limits and Mechanics

• SEP IRA & Solo 401(k) Limits: Both have a $72,000 max (for 2026); key difference is how you reach that limit.
  • SEP: 20% of net income; need $360,000 compensation to max out.
  • Solo 401(k): Allows for higher contributions with lower income (maxed out at ~$235-240k).
  • Mega Backdoor Roth: Potentially put full $72,000 into Roth via Solo 401(k) if $72,000 of net income.
• Multiple Plans: The $24,500 employee deferral limit is aggregated across all plans, but $72,000 plan limit is per plan.

“Each plan has its own $72,000 limit...So what you can do if you have a side hustle...set up a solo 401(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.” – Dan LaRosa (04:39)

3. Choosing the Right Plan

• Income & Objectives Matter:
  • Lower, unpredictable income? Solo 401(k) offers maximum flexibility and contribution on lower income.
  • Want Roth dollars? Only the Solo 401(k) with Mega Backdoor Roth feature allows it up to $72,000.
  • Consistently high income, traditional tax deferral? SEP is simple and effective.

“If your income is on the lower side...the Solo K is going to certainly allow the most flexibility...If Roth contributions are the objective, you just can’t beat the Solo K with the Mega Backdoor Roth...” – Dan LaRosa (07:01)

4. Employee Eligibility & Family Businesses

• Solo 401(k): If you have eligible W-2 employees (other than owners/spouses), you can’t use it.
• SEP IRA: Triggered by ‘three out of five years’ rule; eligible employees get the same contribution rate as the owner (can get expensive).
• Spouses: Can be covered, treated as a co-owner or partner. Both spouses (if they draw wages) can max out contributions.

“A solo K can have multiple partners...As long as there are no non-owner employees, you’re good to go.” – Dan LaRosa (08:42)

5. Administration, Compliance, and Deadlines

• Simplicity:
  • SEP is easiest—few forms, no annual filings, owner tracks contributions.
  • Solo 401(k) – More complex; issues arise when assets top $250,000—must file Form 5500EZ (real penalties for missing this).
• Deadlines:
  • Both plans can generally be set up and funded for the previous year up to the tax filing deadline (plus extensions).
  • Full Solo 401(k) flexibility only if set up by April 15; after that, only employer contributions possible for that year.

“SEP is the easiest for sure...With the Solo 401(k)...once the plan reaches $250,000...a Form 5500EZ must be filed...it’s $250 a day up to $150,000.” – Dan LaRosa (10:28)

6. Succession, Exit, and Flexibility

• Solo 401(k): Each owner can contribute different amounts; more flexible for adding/removing partners.
• SEP IRA: Pro-rata contributions for everyone; less flexibility if partners have different goals.

“The Solo K is always going to give you more flexibility than the SEP...they can each contribute different amounts...In a SEP, contributions are pro rata...” – Dan LaRosa (13:06)

7. Creditor Protection and ERISA Issues

• Employer 401(k)s and Defined Benefit plans: Best ERISA creditor protection.
• Solo 401(k)s and SEPs: Not covered by ERISA, same protection as IRAs. If you need more, consider rolling funds into an employer 401(k).

“SEPs and Solo Ks are on the same level in terms of creditor protection, the same as a regular IRA.” – Dan LaRosa (13:58)

8. Supercharging Household Retirement Savings

• A spouse legitimately on payroll can establish their own SEP or Solo 401(k)—can dramatically increase household contributions.

“It’s an easy way to kind of supercharge your household savings is adding your spouse to your solo practice retirement plan.” – Dan LaRosa (15:31)

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Notable Quotes & Memorable Moments

• On maximizing contributions with multiple businesses:

  “Each plan has its own $72,000 limit...what you can do if you have a side hustle...set up a solo 401(k) with a Mega Backdoor Roth or even just a regular solo K or SEP.” – Dan LaRosa (04:39)

• On why people default to simpler plans:

  “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.” – Dan LaRosa (07:01)

• On compliance risk:

  “Once the plan reaches a total of $250,000...Form 5500EZ must be filed...It’s $250 a day up to $150,000.” – Dan LaRosa (10:28)

• On partner and spouse participation:

  “A solo K can have multiple partners...and each of the spouses...As long as there are no non-owner employees, you’re good to go.” – Dan LaRosa (08:42)

• On creditor protection:

  “SEPs and Solo Ks are on the same level in terms of creditor protection, the same as a regular IRA.” – Dan LaRosa (13:58)

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Important Timestamps

• Plan overview and selection basics: 03:23 – 04:01
• Rules for side hustles and contribution stacking: 04:39 – 05:21
• SEP vs. Solo 401(k) vs. Mega Backdoor Roth – which to choose & why: 07:01 – 07:48
• Employee eligibility, spouse involvement, multi-partner scenarios: 08:26 – 09:56
• Administration, Form 5500EZ, compliance penalties: 10:28 – 11:25
• Set up and funding deadlines, retroactive funding options: 11:43 – 12:46
• Succession/exit flexibility and challenges: 13:06 – 13:40
• Creditor and ERISA protection distinctions: 13:58 – 14:49
• Spouse contribution strategies for maxing out household savings: 15:31 – 16:10
• Final call to action for business owners: 16:10 – 16:32

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Conclusion / Action Steps

Barry sums it up: Small business owners and solo practitioners have an “enormous way to accumulate wealth over the next 10 or 20 years” using the right blend of SEP, Solo 401(k), and Mega Backdoor Roth options—and it’s essential to consult your financial and tax advisors to devise the optimal setup for your income, business structure, and long-term ambitions.

“If you’re a small business owner or solo practitioner and you haven’t taken advantage...speak to your...financial advisor, accountant, tax professional and get hopping on this.”
– Barry Ritholtz (16:10)

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For more actionable deep-dives on personal finance, investing, and markets, subscribe to Bloomberg’s Masters in Business: At The Money.

Transcript

[Barry Ritholtz]

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[Podcast Host or Announcer]

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[Barry Ritholtz]

If you ever get annoyed, go give me a tip. And boy, I love to work at nothing all day and I've been taking care of business every day Taking care of business every week I've been taking care of business it's all right Taking

[Dan LaRosa]

care of business and working overtime workouts.

[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 what options exist for either solo or small business owners if they want to save more money for retirement on a tax deferred basis?

[Dan LaRosa]

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 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.

[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, 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.

[Dan LaRosa]

Yeah, a lot of people don't realize this, but each plan has its own $72,000 limit, right? The only thing that aggregates across all plans is the 24 and a half thousand dollar employee deferral limit. Right? 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.

[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?

[Dan LaRosa]

Yeah, well, the $72,000 number is just the overall 401 limit, right, 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, 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, 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.

[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?

[Dan LaRosa]

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 going to 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, you just want to maximize your tax deferrals, then a SEP is going to get the job done.

[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.

[Dan LaRosa]

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 going to have a lot more flexibility with your contributions, and the higher your income goes, you're fine with the 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.

[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?

[Dan LaRosa]

The Solo 401 is easy. 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 as the three of five rule. So once you have an employee that's worked three out of any five years earning more than something nominal, I think 700 or $750, they're eligible. And that means they would receive the same percentage of compensation that you're giving yourself. So that that could get expensive in a hurry. As far as a spouse being classified as an employee, 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 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 non, as long as there are no non owner employees, you're good to go.

[Barry Ritholtz]

And that's 72,000 per person, husband and wife per person.

[Dan LaRosa]

Again, assuming the income allows for it.

[Barry Ritholtz]

But yes, really, really intriguing man. So 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?

[Dan LaRosa]

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 5500EZ must be filed. All right. That's basically the tax return for the plan. It's a really simple form, but the penalties are insane. It's, it's $250 a day up to $150,000. So for a very long time this really wasn't regulated. But in recent years we've, 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, it's very important to be aware of this when you set the plan up.

[Barry Ritholtz]

So, so let's talk set up 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 fund it for 2025? What are the options? What does the timing look like?

[Dan LaRosa]

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 15, let's just say for this year, the plan is set up by April 15th of 2026. You can make employee and employer profit sharing contributions. 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 set up 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.

[Barry Ritholtz]

Let's talk about succession planning or exit planning or with a husband and wife, the death of a spouse or 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?

[Dan LaRosa]

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. In a sep, contributions are pro rata, so everyone has to get the same procedure, 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.

[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?

[Dan LaRosa]

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 credit or protection of all qualified plans. It is a common misconception that solo KS because they are 401s or 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 into your employer 401k or defined benefit plan if you have one available.

[Barry Ritholtz]

Huh. That is really interesting. I would imagine doctors or I remember back in the day brokers used to get sued on 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, yeah.

[Dan LaRosa]

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 adds up quickly. It's an easy way to kind of supercharge your household savings is adding your spouse to your solo practice retirement plan.

[Barry Ritholtz]

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 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 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. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive and murky. Lots of firms throw a couple of flashy funds your way and call it a day. Vanguard takes a different approach. The Vanguard Lineup includes over 80 bond funds actively managed by a 200 person global squad of sector specialists, analysts and traders. Lots of firms love to highlight their star portfolio managers like it's all about that one brilliant mind that makes the magic happen. Vanguard's philosophy is different. They believe the best active strategy shouldn't be one person, it should be shared across the team. So if you're looking to offer your clients funds that are built to deliver consistent results, go see the record for [e-mail] audio. That's vanguard.com audio all investing is subject to risk Vanguard Marketing Corporation Distributor Support

[Podcast Host or Announcer]

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[Barry Ritholtz]

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