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The-Hidden-Risk-Inside-Your-Company-Stock

The Hidden Risk Inside Your Company Stock

By Financial Planning, Investments, Retirement Planning

Authored by Matt Waters

Some of the most financially successful people I meet have the same underlying risk sitting quietly beneath an otherwise sophisticated balance sheet: extreme concentration in a single stock.

The scenario is common among senior executives, founders, physicians tied to healthcare systems, and long-term employees of successful companies.

An executive at a technology company may accumulate several million dollars in RSUs over a decade. A founder may hold the majority of their net worth in private shares after years of reinvesting into the business. A senior employee at a public company may have built wealth almost accidentally through stock grants that appreciated dramatically over time.

Initially, the concentration often feels rational.

The company is familiar and the leadership is trusted. The business model is understood better than the average investor could ever understand it. In many cases, the stock itself created the family’s wealth. That emotional connection matters more than most people realize.

The difficulty is that concentrated positions introduce a level of risk that many affluent investors would never knowingly accept elsewhere in their portfolio.

I recently reviewed a household where nearly 72% of investable assets were tied to one publicly traded company. The executive understood diversification academically, but every attempt to reduce the position felt emotionally uncomfortable because the stock had performed exceptionally well for over a decade.

That is the psychological trap.

The very success of the position makes diversification harder.

Taxes complicate the issue further. Once a position has appreciated substantially, many investors begin viewing the capital gains tax as the primary risk. In reality, market concentration is often the much larger exposure.

A 20% or 30% decline in a concentrated stock can erase years of tax savings in a matter of months.

This becomes especially important when multiple aspects of life are tied to the same company. Compensation, health benefits, deferred compensation, stock options, and future career opportunities may all depend on one organization continuing to perform well.

From a risk management perspective, that is an enormous amount of dependency placed on a single entity.

The solution is rarely an abrupt liquidation.

Sophisticated diversification strategies can include:

  • Multi-year selling schedules
  • Charitable gifting strategies
  • Donor advised funds
  • Exchange funds
  • Coordinating gains with lower-income years
  • Options overlays for risk reduction

The technical planning matters, but the behavioral side matters just as much.

For many successful professionals, selling shares feels disloyal or premature. Yet over time, most affluent families eventually realize that the purpose of wealth planning is not maximizing attachment to one investment.

It is protecting the lifestyle, flexibility, and opportunities that investment created in the first place.

Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. Tax planning and preparation services are offered through Prime Capital Tax Advisory. PCIA: 6201 College Blvd., Suite 150, Overland Park, KS 66211. PCIA doing business as Prime Capital Financial | Wealth | Retirement | Wellness | Family Office | Tax Advisory.

2026-07-06
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Social Security Basics for 2026: How Benefits Are Calculated and When to Claim

By Financial Planning, Investments, Retirement Planning

Social Security Basics for 2026: How Benefits Are Calculated and When to Claim

Authored by Kenji Noguchi

Key Takeaways

  • Your Social Security benefit is based on your highest 35 years of earnings and the age at which you claim. Understanding both factors can help you maximize your lifetime retirement income.
  • Claiming age matters more than many retirees realize. Benefits can be reduced by up to 30% if claimed early at age 62, while delaying until age 70 can significantly increase your monthly payment.
  • Social Security should be viewed as part of a broader retirement income strategy. Coordinating benefits with retirement accounts, pensions, healthcare costs, and other assets can improve long-term outcomes.
  • 2026 updates include a 2.8% COLA adjustment, higher payroll tax wage limits, and updated earnings-test thresholds. Staying informed about annual changes can help you make more confident claiming decisions.

For many retirees, Social Security represents one of the largest sources of guaranteed income they will ever receive. Understanding how your benefit is calculated and when to claim can make a meaningful difference in your long-term retirement income.

Planning for Social Security? Download our Social Security Planning Guide for a deeper look at claiming strategies, spousal benefits, survivor benefits, and how Social Security fits into a broader retirement income plan.

What Is Social Security?

Social Security is a federal retirement program funded primarily through payroll taxes. During your working years, both you and your employer contribute to the system. In retirement, eligible workers receive a monthly benefit based primarily on their earnings history and the age at which they choose to claim benefits.

For 2026, employees and employers each contribute 6.2% of wages to Social Security, up to the annual taxable wage base of $184,500.

(Source: SSA COLA Notice, 2026)

How Your Benefit Is Calculated

The Social Security Administration (SSA) calculates your retirement benefit using your highest 35 years of inflation-adjusted earnings. If you worked fewer than 35 years, the remaining years are counted as zeros, which is why working a full 35 years helps maximize your benefit.

Those earnings are then used to calculate your Primary Insurance Amount (PIA), the monthly benefit you would receive if you claim at your Full Retirement Age.

Check Your Estimated Benefit

Before making any claiming decision, create or review your free account at ssa.gov/myaccount. Your account allows you to:

  • Review your earnings history
  • See estimated benefits at different claiming ages
  • Verify that your reported earnings are accurate
  • Explore retirement planning tools provided by the SSA

Reviewing your earnings record periodically can help you catch any errors before they affect your retirement income.

What Is Full Retirement Age?

Full Retirement Age (FRA) is the age at which you become eligible to receive 100% of your Social Security retirement benefit. For individuals born in 1960 or later, Full Retirement Age is 67.

(Source: SSA, ssa.gov)

The increase in Full Retirement Age was established through reforms enacted in the 1980s and has been gradually phased in over time.

When Should You Claim Social Security?

You can begin collecting Social Security as early as age 62. Waiting until Full Retirement Age means receiving 100% of your benefit. Claiming earlier permanently reduces that amount, by as much as 30% for those with an FRA of 67. Delaying benefits past Full Retirement Age increases your monthly amount through delayed retirement credits, growing approximately 8% per year until age 70.

In 2026, the maximum monthly benefit for someone who earned at or near the taxable maximum for 35 years is:

  • $2,969 at age 62
  • $4,152 at Full Retirement Age
  • $5,181 at age 70

Most retirees will receive less than these maximum amounts, but the relationship between claiming age and benefit size applies to everyone.

(Source: SSA FAQ, ssa.gov)

Cost-of-Living Adjustments (COLA)

Social Security benefits are adjusted annually to help keep pace with inflation. The 2026 Cost-of-Living Adjustment (COLA) is 2.8%, following a 2.5% adjustment in 2025. For the average beneficiary, that translates to approximately $56 more per month starting in January 2026.

It is also worth factoring in Medicare costs when estimating your net benefit each year. In 2026, the standard Medicare Part B premium increased from $185 to $201.90 per month, and this premium is automatically deducted from most Social Security checks.

(Sources: SSA COLA Notice, 2026; Centers for Medicare and Medicaid Services, 2026 Part B Premium Announcement)

Working While Receiving Social Security

Many people continue working while collecting Social Security benefits. If you claim before reaching Full Retirement Age and continue to work, an earnings test may temporarily adjust your benefit.

In 2026:

  • If you are under Full Retirement Age for the entire year, $1 is withheld for every $2 earned above $24,480
  • In the year you reach Full Retirement Age, $1 is withheld for every $3 earned above $65,160, but only for earnings before reaching FRA

Once you reach Full Retirement Age, the earnings limit no longer applies. You can earn any amount without any reduction to your Social Security benefit.

(Source: SSA, ssa.gov/benefits/retirement/planner/whileworking.html)

Three Questions to Ask Before Claiming

The decision of when to claim Social Security deserves careful thought. Before claiming, consider:

  1. Do I Need the Income Right Away?
     If you have other income sources available, delaying benefits may provide a larger guaranteed income stream later in retirement.
  2. How Long Do I Expect to Work?
     Continuing to work may give you the opportunity to delay benefits while adding to your future retirement income.
  3. How Does Social Security Fit With My Overall Retirement Plan?
     Social Security is most valuable when evaluated alongside retirement accounts, pensions, taxable investments, healthcare costs, and other income sources. The right claiming strategy often depends on how all of these pieces work together.

Making the Most of Social Security in 2026

Social Security is one of the few sources of guaranteed lifetime income available to retirees, making it a foundational part of many retirement income plans. The right strategy depends on your financial goals, health, family situation, income needs, and broader retirement plan.

Download our Social Security Planning Guide for a deeper look at claiming strategies, spousal and survivor benefits, and how to coordinate Social Security with your overall retirement income. Enter your info below to get started.

This information does not constitute legal advice. Prime Capital Financial and its associates do not provide legal advice. Individuals should consult with an attorney regarding the applicability of this information for their situations.

Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. Tax planning and preparation services are offered through Prime Capital Tax Advisory. PCIA: 6201 College Blvd., Suite 150, Overland Park, KS 66211. PCIA doing business as Prime Capital Financial | Wealth | Retirement | Wellness | Family Office | Tax Advisory.

2026-06-28
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How-to-Avoid-Vesting-Errors-in-401k-Plans

How to Avoid Vesting Errors in 401(k) Plans

By Financial Planning, Investments, Retirement Planning

How to Avoid Vesting Errors in 401(k) Plans

Vesting may seem like a technical detail, but it plays an important role in helping employees understand and appreciate the value of their retirement benefits. For plan sponsors, maintaining accurate vesting schedules is an opportunity to create a smoother participant experience while supporting strong plan administration practices. The good news is that avoiding common vesting mistakes is often simpler than many employers realize. Here are a few practical ways to help ensure your plan runs smoothly and your employees receive the benefits they’ve earned.

What Is Vesting?

  • Vesting = the percentage of employer contributions (like match or profit-sharing) that belongs to the employee after a certain period of service.
  • Employee deferrals are always 100% vested.
  • Employer contributions can be subject to a vesting schedule, such as:

    • 3-year cliff: 0% until year 3, then 100%.
    • 6-year graded: 20% per year starting in year 2, fully vested at year 6.

How Retirement Plan Vesting Errors Happen

  1. Miscounting Service

    • Failing to credit all eligible hours, especially for part-time or rehired employees.
  2. Incorrect Schedule Applied

    • Applying a different schedule than what’s written in the plan document.
  3. Failing to Accelerate Vesting

    • Some events (like plan termination or reaching normal retirement age) require full vesting. Sponsors sometimes miss this.
  4. Rehire Mistakes

    • Not restoring prior service for employees who leave and come back, when the plan requires it.

The Fallout From Vesting Errors

  • Shortchanged Employees: Participants may receive smaller account balances than they’re entitled to.
  • Overpayments: Employers may pay out too much to terminated employees, which is usually not recoverable.
  • Compliance Exposure: Vesting mistakes are fiduciary breaches and can trigger IRS/DOL correction requirements.

Correcting Vesting Errors

The IRS correction system (EPCRS) generally requires:

  • Make-Whole Contributions: If an employee was shorted, the employer must contribute the missed vested amount plus lost earnings.
  • No Easy Undo for Overpayments: If too much was paid out, the employer often has to absorb the cost.

Translation: vesting errors almost always cost the employer more money in correction than they would have cost to do it right in the first place.

How to Prevent Vesting Mistakes

  1. Align Payroll and HR Data

    • Track service hours and dates of hire/termination accurately.
  2. Automate with Recordkeepers

    • Use systems that calculate vesting automatically based on service records.
  3. Annual Vesting Audit

    • Review vesting calculations each year, especially before large distributions.
  4. Pay Attention to Rehires

    • Apply the plan’s rules on restoring prior service consistently.
  5. Know the “Accelerated Vesting” Triggers

    • Make sure you don’t miss situations where employees should become 100% vested (plan termination, reaching normal retirement age, etc.).

Bottom Line

Vesting errors can be easy to overlook, especially in complex retirement plans, but they are also highly preventable with the right processes in place. The good news is that employers can significantly reduce risk by automating calculations where possible, conducting regular reviews, and applying vesting rules consistently across all participants. When managed proactively, vesting becomes more than a compliance requirement. It becomes an opportunity to reinforce trust, demonstrate operational excellence, and give employees greater confidence in their retirement benefits.

This information does not constitute legal advice. Prime Capital Financial and its associates do not provide legal advice. Individuals should consult with an attorney regarding the applicability of this information for their situations.

Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. Tax planning and preparation services are offered through Prime Capital Tax Advisory. PCIA: 6201 College Blvd., Suite 150, Overland Park, KS 66211. PCIA doing business as Prime Capital Financial | Wealth | Retirement | Wellness | Family Office | Tax Advisory.

2026-06-03
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HSA vs. FSA 2026: Key Differences, Contribution Limits, and How to Choose

By Financial Planning, Investments, Retirement Planning

HSA vs FSA 2026: Contribution Limits & How to Choose

Authored by Kenji Noguchi

If you have access to a Health Savings Account (HSA) or a Flexible Spending Account (FSA) through your health benefits, you’re sitting on a real opportunity to reduce your tax bill and build a stronger financial plan. Both accounts let you set aside money for qualified medical expenses on a pre-tax basis, which means every dollar you contribute goes further than it would otherwise. 

Understanding how they each work can help you get even more out of your accounts in 2026.

If you want a side-by-side breakdown of how these accounts work and how to use them more strategically, download our HSA vs. FSA guide at the end of this article.

What Is an HSA?

A Health Savings Account is a tax-advantaged account available to individuals enrolled in a High-Deductible Health Plan (HDHP). To be eligible to contribute, your health insurance plan must meet IRS criteria for an HDHP.

For 2026, an HSA-qualifying HDHP must have:

  • A minimum annual deductible of $1,700 for individual coverage or $3,400 for family coverage
  • Out-of-pocket maximums no higher than $8,500 (individual) or $17,000 (family)

(Source: IRS Rev. Proc. 2025-19)

One of the most valuable things about an HSA is its triple tax advantage:

  1. Contributions are tax-deductible (or pre-tax if made through payroll)
  2. Earnings grow tax-free
  3. Withdrawals are tax-free when used for qualified medical expenses

Few financial tools offer that level of tax efficiency.

Unlike most employer benefits, HSA funds roll over each year with no deadline to use them. The account belongs to you, and many providers allow you to invest the balance once a minimum threshold is met, creating an opportunity to treat the HSA as a long-term healthcare reserve.

After age 65, funds can be used for any purpose without penalty. Non-medical withdrawals are taxed as ordinary income, similar to a traditional retirement account.

What Is an FSA?

A Flexible Spending Account is an employer-sponsored benefit that lets you contribute pre-tax dollars toward qualified medical expenses. 

Unlike an HSA, eligibility is not tied to a high-deductible plan, which makes FSAs more broadly accessible.

FSA funds can be used for a wide range of qualified expenses, including co-pays, prescriptions, dental and vision care, and many over-the-counter items.

One structural advantage stands out: your full annual election is available at the start of the plan year, regardless of how much you have contributed through payroll. This can be meaningful if expenses arise early in the year.

The tradeoff is flexibility. FSAs are generally subject to a use-it-or-lose-it rule. Depending on your employer’s plan, you may be able to carry over up to $680, or you may be offered a limited grace period.

For 2026, you can contribute up to $3,400 to a health FSA.

(Source: IRS Rev. Proc. 2025-32)

2026 HSA vs. FSA Contribution Limits

HSA vs FSA 2026 contribution limits table

HSA (Individual): $4,400

HSA (Family): $8,750

HSA Catch-Up (55+): +$1,000

Health FSA: $3,400

FSA Carryover (if offered): $680

(Sources: IRS Rev. Proc. 2025-19; IRS Rev. Proc. 2025-32)

A Few Key Differences

Eligibility: An HSA requires enrollment in an HSA-qualified HDHP. An FSA is generally available through any employer-sponsored health plan.

Rollover: HSA balances roll over every year with no limit. FSA funds are subject to use-it-or-lose-it rules, with limited carryover options depending on your plan.

Portability: Your HSA belongs to you. If you change jobs or health plans, the account goes with you. An FSA is tied to your employer.

Investment opportunity: HSA funds can often be invested for long-term growth. FSA funds are not invested. 

Contribution source: Both you and your employer can contribute to an HSA. FSA contributions typically come through your payroll elections, and some employers contribute as well.

Funds availability: With an FSA, your full annual election is available on day one of your plan year. HSA funds are available as you contribute to them.

When an HSA May Make Sense

An HSA tends to be a strong fit if:

  • You are enrolled in, or open to, a high-deductible health plan
  • You want to build long-term savings specifically for healthcare
  • You have the ability to cover current medical expenses out of pocket
  • You are looking for additional tax-advantaged ways to complement retirement savings

Used intentionally, an HSA can function as both a spending account and a long-term asset.

When an FSA May Make Sense

An FSA can be a great fit if:

  • You are not enrolled in an HDHP
  • You have predictable, recurring medical expenses each year, such as prescriptions, contacts or glasses, or regular dental work
  • You want a simple, straightforward way to reduce your taxable income for known healthcare costs

The ability to access your full election early in the year can also make planning easier when expenses are known in advance.

Can You Have Both?

Possibly. You generally cannot contribute to both a standard health FSA and an HSA in the same year. However, a Limited Purpose FSA, which covers only dental and vision expenses, can be paired with an HSA. This combination lets you cover routine dental and vision costs through the FSA while preserving your HSA balance for other medical needs or long-term growth.

If both you and your spouse have access to FSAs through your respective employers, each of you can contribute up to the individual FSA limit.

Making the Most of Your HSA vs. FSA in 2026

Both HSAs and FSAs can play a meaningful role in a broader financial plan. The right choice depends on your health plan, your expected expenses, and how you want to approach tax efficiency over time.

For those with access to an HSA, the combination of tax treatment, rollover flexibility, and investment potential makes it one of the more powerful tools available for managing future healthcare costs.

If you’re also weighing retirement account options, see our guide to 401(k) vs. IRA or Pretax vs. Roth.

Download our in-depth HSA vs. FSA guide to better understand how to use these accounts more strategically, Enter your info below to get started.

This information does not constitute legal advice. Prime Capital Financial and its associates do not provide legal advice. Individuals should consult with an attorney regarding the applicability of this information for their situations.

Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. Tax planning and preparation services are offered through Prime Capital Tax Advisory. PCIA: 6201 College Blvd., Suite 150, Overland Park, KS 66211. PCIA doing business as Prime Capital Financial | Wealth | Retirement | Wellness | Family Office | Tax Advisory.

2026-05-18
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Plan Document Failures: The Hidden Risk in 401(k) Plans

By Investments, Retirement Planning

Plan Document Failures: The Hidden Risk in 401(k) Plans

When it comes to 401(k) compliance, the plan document is the rulebook. Everything—eligibility, contributions, vesting, distributions—flows from what’s written there. The IRS and Department of Labor don’t care how you think your plan works; they care whether you’re operating exactly as the document says.

401(k) plan document failures are one of the most common and costly compliance risks for plan sponsors.

What Are 401(k) Plan Document Failures?

A failure occurs when:

The document is out of date

  • Laws change (think: SECURE Act, CARES Act, SECURE 2.0). Employers must adopt interim amendments or restatements on time. Miss the deadline, and your plan may be out of compliance.

The plan is operated inconsistently with the document

  • Example: The plan says the match is 100% up to 4%, but payroll applies 50% up to 6%.
  • Or the plan says bonuses are included as compensation, but payroll excludes them.

The document is incomplete or poorly drafted

  • Missing provisions, conflicting terms, or sloppy customization can all trigger issues.
401(k) plan document failures compliance review process

Why a Current 401(k) Plan Document Matters

  • IRS Risk: An out-of-date or improperly followed plan document can technically disqualify the entire plan. That means contributions lose tax-deferred status.
  • DOL Risk: Operating inconsistently with the plan is a fiduciary breach.
  • Employee Risk: Confusion and disputes when benefits don’t match what the document promises.

Correcting 401(k) Plan Document Failures

The IRS’s correction system (EPCRS) allows employers to fix most issues if they act proactively. You can review the full program details directly through the IRS.

  • Missed Amendments: Can often be adopted retroactively if discovered within a certain timeframe.
  • Operational Failures: Employers can either (a) change operations to match the plan document or (b) retroactively amend the plan to match actual practice—if the practice was otherwise permissible.
  • Filing Corrections: May require submitting through the IRS’s Voluntary Correction Program (VCP).

The key: don’t wait. The longer the error lingers, the more expensive and complex the correction.

How to Prevent 401(k) Plan Document Failures

  1. Stay Current on Law Changes
    Work with your TPA, recordkeeper, or advisor to track amendment deadlines.
  2. Adopt Amendments Timely
    Put processes in place to review and adopt required amendments before IRS deadlines.
  3. Annual “Document vs. Operations” Review
    Compare how the plan is actually run with what the document says. Catch discrepancies early.
  4. Centralize Control
    Avoid letting different departments or locations interpret the plan their own way.
  5. Keep Communication Clear
    Update employee communications and SPDs (Summary Plan Descriptions) whenever the plan changes.

Bottom Line

Plan documents are the backbone of retirement plan compliance. Keeping amendments updated or operational systems aligned can help ensure your organization’s tax-favored status is secured and fiduciary liabilities are met.

Sponsors who regularly review, update, and align their documents with plan operations not only stay compliant, they build credibility with both employees and regulators.

This information does not constitute legal advice. Prime Capital Financial and its associates do not provide legal advice. Individuals should consult with an attorney regarding the applicability of this information for their situations.

Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. Tax planning and preparation services are offered through Prime Capital Tax Advisory. PCIA: 6201 College Blvd., Suite 150, Overland Park, KS 66211. PCIA doing business as Prime Capital Financial | Wealth | Retirement | Wellness | Family Office | Tax Advisory.

2026-05-05
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Pretax vs. Roth: What’s the Difference, and Which One Is Better for You?

By Investments, Retirement Planning

Pretax vs. Roth: What's the Difference, and Which One Is Better for You?

Authored by Kenji Noguchi

Should you pay taxes now or later? That’s really what the pretax vs. Roth decision comes down to. It sounds simple, but the choice you make today can have a significant impact on how much you keep in retirement. Traditional retirement plans and individual retirement accounts (IRAs) offer two common approaches: pretax or Roth contributions. Despite their similarities, they have distinct features and benefits that make each one better suited to different situations.

If you’d like a side-by-side breakdown you can reference later, we’ve also put together a simple guide you can download at the end of this article.

Understanding Pretax Contributions

Pretax contributions are made before income taxes are withheld, which means they reduce your taxable income in the year you make them. This is a real, immediate benefit, especially if you’re in a high tax bracket today.

Contributions to a traditional IRA or 401(k) grow on a tax-deferred basis. You won’t owe taxes on your contributions or earnings until you take money out. At that point, withdrawals are taxed as ordinary income, not at capital gains rates. This distinction matters: even investment gains inside a pretax account are taxed as regular income when withdrawn, which is generally a higher rate than long-term capital gains.

Pretax contributions tend to appeal to investors who want to reduce their tax bill today and expect to be in a lower tax bracket in retirement.

Understanding Roth Contributions

Unlike pretax contributions, Roth contributions are made with after-tax dollars, meaning you’ve already paid income tax on the money before it goes in. The payoff comes later: funds grow tax-free, and qualified withdrawals in retirement are completely tax-free.

To access earnings tax-free, you generally need to be at least 59½ and have held the account for at least five years. For those who expect their tax rate to be similar or higher in retirement, this upfront tax hit can be well worth it.

Pretax and Roth Contributions: Key Differences

The core tradeoff is timing. Pretax contributions reduce your taxes now but create a tax obligation later. Roth contributions are taxed now, but your money grows and comes out tax-free. Here’s how they compare across a few key dimensions:

  • Tax treatment of contributions: Pretax reduces your current taxable income; Roth contributions are made with after-tax dollars
  • Taxes at withdrawal: Pretax withdrawals are taxed as ordinary income; Roth withdrawals are tax-free (if qualified)
  • Growth: Both grow without annual taxation, but pretax is tax-deferred while Roth growth is tax-free

Required Minimum Distributions (RMDs): Traditional pretax accounts require RMDs starting at age 73; Roth IRAs do not (though Roth 401(k)s did until SECURE 2.0 eliminated that requirement)

When Pretax Contributions Make Sense

Consider leaning toward pretax if:

  • You’re currently in a high tax bracket and expect to be in a lower one in retirement
  • You want to reduce your taxable income now, for example, to stay below a certain tax threshold or reduce exposure to Medicare surcharges
  • You expect your income to drop meaningfully after you stop working

Think of it this way: a 55-year-old at peak earnings who expects a simpler, lower-income retirement is likely getting more value from the pretax deduction today than they would from tax-free withdrawals later.

When Roth Contributions Make Sense

Consider leaning toward Roth if:

  • You’re earlier in your career and currently in a lower tax bracket than you expect to be at retirement
  • You want tax-free income in retirement to complement other taxable sources like Social Security or pension payments
  • You want flexibility, as Roth accounts have no RMDs, and contributions (not earnings) can be withdrawn at any time without penalty

A 35-year-old early in their career, for example, may be paying a relatively low tax rate now. Locking in that rate through Roth contributions and letting decades of growth come out tax-free can be a powerful long-term move.

One important note on Roth IRA eligibility: High earners may be phased out of contributing directly to a Roth IRA. For 2026, the phase-out range runs from $153,000 to $168,000 for single filers, and from $242,000 to $252,000 for married couples filing jointly. If your income falls above those ranges, you are not eligible to contribute directly, but a backdoor Roth conversion may still be an option worth exploring with your advisor.

Can You Contribute to Both?

Yes. You can split contributions between pretax and Roth accounts within the same plan year. Many investors do this intentionally to diversify their future tax exposure, as having both taxable and tax-free buckets in retirement gives you more flexibility to manage your tax bill year to year. Just keep in mind that your total contributions across account types cannot exceed the IRS annual limits.

Can You Switch From Pretax to Roth?

Yes. Converting a pretax account to a Roth is allowed, but you’ll owe ordinary income taxes on the amount converted in the year of the conversion. This is called a Roth conversion, and it can be a smart move if you expect to be in a higher tax bracket later, or if you want to reduce future RMDs. Conversions are most advantageous when done in lower-income years, for example, between retirement and when Social Security or RMDs kick in.

2026 Contribution Limits

The IRS sets annual limits on how much you can contribute. Here’s where things stand for 2026:

IRA (Traditional or Roth):

  • Under age 50: $7,500
  • Age 50 and older: $8,600 (includes $1,100 catch-up contribution)

401(k) (Traditional or Roth):

  • Under age 50: $24,500
  • Age 50–59 and 64+: $32,500 (includes $8,000 catch-up)
  • Age 60–63: $35,750 (includes $11,250 super catch-up under SECURE 2.0)

Note that IRA limits are per person, not per household. A married couple can each contribute up to the individual limit, provided each has sufficient earned income.

New for 2026: If you are age 50 or older and earned more than $150,000 in FICA wages in 2025, your catch-up contributions to a workplace plan must be made as Roth (after-tax) contributions. This is a meaningful change for higher earners, and worth confirming with your HR department or plan administrator.

The Bottom Line

The pretax vs. Roth decision isn’t one-size-fits-all. It depends on where you are today, where you expect to be in retirement, and how you want to manage taxes across your lifetime. Many investors benefit from using both and from revisiting the question as their income and circumstances change.

If you’d like help thinking through which approach fits your situation, download our Pretax vs Roth guide or connect with our team to talk through your options.

Contribution limits sourced from IRS Notice 2025-67, announced November 13, 2025.

Download our in-depth pretax vs. Roth guide to better understand your options. Enter your info below to get started.

This information does not constitute legal advice. Prime Capital Financial and its associates do not provide legal advice. Individuals should consult with an attorney regarding the applicability of this information for their situations.

Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. Tax planning and preparation services are offered through Prime Capital Tax Advisory. PCIA: 6201 College Blvd., Suite 150, Overland Park, KS 66211. PCIA doing business as Prime Capital Financial | Wealth | Retirement | Wellness | Family Office | Tax Advisory.

2026-04-21
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Non-Qualified Deferred Compensation: How It Actually Works (and Why Equity Alone Isn’t Enough)

By Investments, Retirement Planning

Non-Qualified Deferred Compensation: How It Actually Works (and Why Equity Alone Isn’t Enough)

In companies of real scale, non-qualified deferred compensation plans tend to get introduced with vague language. “Retention tool.” “Executive benefit.” “Tax deferral.” All true, and all incomplete.

For a private company with 500+ employees and a defined shareholder group already participating in a private stock plan, an NQDC plan isn’t window dressing. It’s a mechanism. It changes cash flow timing, tax exposure, retention dynamics, and balance sheet planning for both the company and its most important people.

Let’s get specific.

What Is Actually Being Deferred

An NQDC plan allows select executives to defer earned compensation, not hypothetical future value. That usually includes:

  • Annual bonuses
  • A portion of base salary above qualified plan limits
  • Incentive compensation tied to performance metrics

The executive elects, in advance, to defer a percentage or dollar amount of compensation they would otherwise receive in cash. That deferred amount is not taxed currently. It becomes a promise by the company to pay it later.

From day one, this is a liability of the company.

Who Pays for It (and Who Really Funds It)

This is where misconceptions creep in.

Executives “fund” the plan economically by choosing not to take cash today. The company “funds” the obligation by managing future cash flow to pay it.

There is no separate trust holding assets for participants. No magical pool of money. The deferred compensation remains on the company’s balance sheet as an unsecured liability.

That said, many companies choose to informally fund the obligation.

This often looks like:

  • Corporate-owned life insurance (COLI)
  • Side investment accounts
  • Internal reserves earmarked for future payouts

These assets belong to the company, not the executives. Their purpose is to help the company manage the future cash obligation, not to guarantee benefits.

The executive bears credit risk. Full stop.

How the Deferred Amount Grows

Deferred compensation doesn’t just sit idle. It is typically credited with a return based on:

  • A market index (S&P 500, blended portfolios, etc.)
  • A fixed rate
  • Company performance metrics
  • A custom formula approved by the board

No actual investment occurs on behalf of the executive. This is accounting, not custody. The credited return simply determines how much the company will owe in the future.

The elegance here is flexibility. Growth can be conservative, aggressive, or tied directly to business outcomes.

When and How It Gets Paid

Payout timing is defined up front, which is non-negotiable under 409A rules.

Common distribution triggers include:

  • Retirement
  • Separation from service
  • A fixed future date
  • Change in control (sometimes)

Payouts may occur as:

  • A lump sum
  • Installments over 5–15 years
  • A customized schedule

This is where NQDC shines alongside equity. Equity pays when the company transacts. NQDC pays when the executive plans their life.

Who Actually Benefits

Executives benefit by:

  • Deferring taxes in peak earning years
  • Creating predictable future income
  • Reducing pressure to force liquidity events
  • Complementing illiquid equity with scheduled cash flow

The company benefits by:

  • Retaining key talent without issuing more equity
  • Avoiding dilution
  • Controlling payout timing
  • Aligning leadership behavior with long-term performance
  • Strengthening golden-handcuff dynamics without drama

Founders benefit because pressure comes off the cap table. Not every retention problem needs to be solved with stock.

How This Enhances a Private Stock Plan

Private stock plans reward ownership. They do not reward patience, timing, or personal cash flow needs. An NQDC plan fills that gap.

Executives who already hold meaningful private equity exposure can use deferred compensation to diversify timing risk, create income independent of a sale, and balance lifestyle planning against concentration risk.

Meanwhile, the company can use NQDC to reward senior leaders who are critical but who are not shareholders, creating a parallel incentive track without complicating governance.

Equity answers the question: “What happens if this works?”
NQDC answers the question: “How do I live well while we’re building?”

The Real Risks (No Spin)

Deferred compensation is only as good as the company behind it. Participants are unsecured creditors. If the business struggles, the obligation is still there, but the ability to pay may not be. This risk must be understood, documented, and accepted.

There is also inflexibility. Once elections are made, changes are limited. Poor plan design locks people into outcomes they may regret later.

From the company’s side, poorly governed plans create resentment and confusion. Clear communication and disciplined administration are not optional.

The Strategic Use Case

NQDC plans work best when:

  • The company has durable cash flow
  • Leadership is highly compensated and highly concentrated
  • Equity is already meaningful
  • The board wants retention without dilution
  • Founders want to slow the drumbeat for liquidity

They fail when treated as perks, sold as guarantees, or bolted on without a clear philosophy.

The Bottom Line

Non-qualified deferred compensation plans are contracts, not benefits. They move income across time, risk across the balance sheet, and pressure away from the cap table. For companies with real scale and real leadership depth, they provide a level of nuance where equity is blunt.

When designed thoughtfully, NQDC plans can make long-term leadership decisions easier, calmer, and better aligned.

And in private companies that plan to stay private for a while, that’s no small thing.

This information does not constitute legal advice. Prime Capital Financial and its associates do not provide legal advice. Individuals should consult with an attorney regarding the applicability of this information for their situations.

Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. Tax planning and preparation services are offered through Prime Capital Tax Advisory. PCIA: 6201 College Blvd., Suite 150, Overland Park, KS 66211. PCIA doing business as Prime Capital Financial | Wealth | Retirement | Wellness | Family Office | Tax Advisory.

2026-04-02
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401 (k) vs. IRA: What’s the Difference and Which One Is Right for You?

By Investments, Retirement Planning

401 (k) vs. IRA: What’s the Difference and Which One Is Right for You?

Authored by Kenji Noguchi

If you’re saving for retirement, you’ve likely heard about both 401(k)s and IRAs. These are two of the most common ways to invest for the future, but they work a little differently. Understanding how each one works can help you make more confident decisions about where your money goes and how it grows over time.

For many people, the question isn’t just which one is better, but how each fits into an overall plan.

What is a 401(k)?

A 401(k) is a retirement account offered through your employer. Contributions are typically made automatically through your paycheck, making it easy to stay consistent without having to think about them each month.

One of the biggest advantages of a 401(k) is the potential for an employer match. In many cases, your employer will contribute additional money based on what you put in. This is often considered one of the most valuable benefits available and can significantly accelerate your long-term savings.

401(k) plans have higher annual contribution limits compared to other retirement accounts. However, the investment options are selected within the plan, which can simplify things but may limit flexibility given the available funds.

What is an IRA?

An IRA, or Individual Retirement Account, is something you open on your own, outside of your employer. It allows you to contribute independently and gives you more control over how your money is invested.

With an IRA, you typically have access to a broader range of investment options, including individual stocks, bonds, ETFs, and mutual funds. This flexibility can be appealing if you want to be more hands-on or tailor your portfolio more specifically to your goals.

IRAs also have contribution limits, and eligibility can depend on factors like your income and whether you are already participating in a workplace retirement plan. There are also different types of IRAs, including traditional and Roth, which can impact how and when your contributions are taxed.

Key Differences

While both accounts are designed to help you save for retirement, there are a few important differences to understand:

  • Where it comes from: A 401(k) is offered through your employer, while an IRA is opened on your own
  • Contribution limits: 401(k)s generally allow for higher annual contributions than IRAs
  • Investment options: IRAs typically offer more flexibility, while 401(k) options are selected within the plan
  • Tax treatment: Both accounts can offer tax advantages depending on whether contributions are made pre-tax or after-tax
  • Employer involvement: 401(k)s may include an employer match, while IRAs do not

These differences don’t necessarily make one better than the other, but they do impact how each account fits into your overall strategy.

When Each Might Make Sense

A 401(k) may make sense if:

  • Your employer offers a match, and you want to take full advantage of it
  • You prefer contributions to happen automatically through your paycheck
  • You want a simple, structured way to build long-term savings

An IRA may make sense if:

  • You want more control over how your money is invested
  • You’re looking to save beyond your employer-sponsored plan
  • You don’t currently have access to a 401(k)

In many cases, the decision isn’t either-or. It’s about how to use each account to support your long-term goals.

Can You Have Both?

Yes. Many people use both a 401(k) and an IRA as part of their overall retirement strategy. For example, someone might contribute enough to their 401(k) to receive the full employer match, then use an IRA to add additional savings and gain more investment flexibility.

Using both accounts can help you take advantage of different benefits and create a more balanced approach to saving. It also allows you to diversify not just your investments, but how your contributions are taxed over time.

Understanding the differences between a 401(k) and an IRA is a strong first step, but the right approach depends on your individual situation.

If you want a quick side-by-side breakdown, download our 401 (k) vs. IRA guide below and connect with our team to talk through your options.

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This information does not constitute legal advice. Prime Capital Financial and its associates do not provide legal advice. Individuals should consult with an attorney regarding the applicability of this information for their situations.

Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. Tax planning and preparation services are offered through Prime Capital Tax Advisory. PCIA: 6201 College Blvd., Suite 150, Overland Park, KS 66211. PCIA doing business as Prime Capital Financial | Wealth | Retirement | Wellness | Family Office | Tax Advisory.

2026-03-26
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ESOPs: A Practical Ownership Strategy for Founders Who Think Long-Term

By Investments, Retirement Planning

ESOPs: A Practical Ownership Strategy for Founders Who Think Long-Term

Authored by Matt Waters

ESOPs tend to suffer from a branding problem. Mention one to a founder and it is often dismissed as an HR initiative or a feel-good employee benefit. In reality, an Employee Stock Ownership Plan is neither soft nor sentimental. It is a structured ownership, liquidity, and succession planning strategy that, when used correctly, can provide meaningful flexibility for long-term founders.

At its core, an ESOP is a qualified retirement plan that owns company stock on behalf of employees. The company establishes a trust, the trust purchases shares from the founder, and those shares are gradually allocated to employees over time. Employees do not write checks or take personal financial risk. They earn ownership through participation.

For the founder, the ESOP is simply a buyer, but one with very different incentives than private equity firms or strategic acquirers.

How an ESOP Transaction Typically Plays Out

Consider a founder-owned business valued at $50 million. It is profitable, well-managed, and generates consistent cash flow. The founder wants liquidity but has no interest in selling control, disrupting culture, or answering to outside investors.

The company establishes an ESOP and sells, for example, 40 percent of the shares for $20 million. The ESOP finances the purchase using a combination of bank debt and a seller note. Over time, the company repays that debt using future profits.

The founder receives liquidity at closing and interest payments on the seller note. The business continues operating as it always has. Employees gain a meaningful economic stake in the company’s success without assuming personal risk.

In many cases, the company’s identity, leadership team, and strategic direction remain largely intact. Ownership broadens, but control can remain exactly where the founder intends.

Control Is More Flexible Than Most Founders Expect

A common misconception about ESOP planning is that it requires surrendering control. That is rarely the case.

ESOPs can be structured as minority or majority owners. Voting control can often be retained. Boards may remain intact. Management continuity is typically encouraged rather than disrupted.

The ESOP trustee serves a fiduciary role, not an operational one. Their responsibility is to ensure fair valuation and protect employee interests. They do not run the business or dictate strategy.

For founders who value independence and long-term stewardship, this distinction is critical.

When an ESOP Makes Sense

An ESOP is generally best suited for companies with:

  • Consistent profitability
  • Predictable cash flow
  • Strong management beyond the founder
  • A desire for gradual ownership transition

It can be particularly attractive to owners who want partial liquidity today, optional liquidity later, and no external exit timeline.

For founders who care about company culture and continuity, an ESOP can offer a succession planning path that prioritizes stability. Unlike many third-party sales, ESOP structures are typically designed to support long-term continuity rather than short-term cost cutting or rapid resale.

When an ESOP Is Not the Right Fit

An ESOP is not appropriate for every business.

It may be a poor fit for companies with unstable earnings, thin margins, or founders seeking a clean and immediate exit. It is also not a strategy that should be pursued solely for tax advantages. While the tax benefits can be meaningful, they are secondary to the operational and cultural commitments required.

Like any ownership transition strategy, alignment matters more than structure alone.

How ESOP Planning Fits Into a Founder’s Wealth Strategy

From a personal wealth planning perspective, ESOP transactions can offer valuable flexibility. Liquidity generated from a partial sale may be used to diversify concentrated holdings, fund trusts, support charitable strategies, or balance inheritances among family members. Remaining ownership can be transitioned over time rather than compressed into a single decision.

This ability to separate liquidity planning from long-term succession planning is often the quiet advantage of an ESOP.

Coordinating the transaction with tax strategy, estate planning, and long-term portfolio construction is essential. Without thoughtful planning, liquidity can create complexity. When integrated properly, it can strengthen a founder’s broader financial position while preserving business continuity.

The Takeaway

An ESOP is not a compromise solution. It is a deliberate one.

For the right founder, it can provide liquidity without surrender, continuity without stagnation, and a structured path for ownership transition that aligns personal wealth goals with the long-term health of the business.

For the wrong founder, it can become an obligation rather than an opportunity.

At this level, the structure is rarely the deciding factor.

Clarity of the owner is.

Important Disclosures

The scenario mentioned in this piece is hypothetical and does not represent any clients or client experiences. This scenario was developed for educational purposes and to illustrate a potential strategy, not to guarantee a specific outcome. Your experience with our firm can and will most likely differ from what is described in this scenario.

This information does not constitute legal advice. Prime Capital Financial and its associates do not provide legal advice. Individuals should consult with an attorney regarding the applicability of this information for their situations.

Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. Tax planning and preparation services are offered through Prime Capital Tax Advisory. PCIA: 6201 College Blvd., Suite 150, Overland Park, KS 66211. PCIA doing business as Prime Capital Financial | Wealth | Retirement | Wellness | Family Office | Tax Advisory.

2026-03-02
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Section 1042 Plan - What You Need To Know

Section 1042 Plans: A Thoughtful Exit Strategy for the High-Net-Worth Founder

By Investments, Retirement Planning

Authored by Matt Waters

For founders who have built meaningful value in a closely held business, the hardest part is often not growth, but deciding how to step into liquidity without blowing up everything that made the business worth owning in the first place.

Section 1042 of the Internal Revenue Code sits at that exact intersection. When implemented appropriately, it can be an efficient structure. When it doesn’t, it’s usually because it was treated like a tax move instead of what it really is: a long-term ownership and estate strategy.

This is not about gaming the system. It’s about structuring a transition that aligns capital, control, people, and legacy.

What a 1042 Plan Really Is (and Isn’t)

At its core, a 1042 transaction allows a shareholder of a C-corporation to sell stock to an Employee Stock Ownership Plan and defer capital gains taxes, provided the proceeds are reinvested into Qualified Replacement Property within the required window.

That sentence undersells what’s happening.

Economically, the founder is exchanging a concentrated ownership position in a single operating company for a diversified portfolio of operating-company securities, while the business itself transitions to partial employee ownership. The IRS’s role is simply to reward that behavior by stepping out of the way on taxes, at least for now.

It is not tax avoidance. It is tax deferral, with the possibility that the tax is never paid if the strategy is coordinated correctly with the founder’s estate plan.

A More Complete 1042 Example

Consider a founder who owns 80 percent of a C-corporation valued at $40 million. The business has consistent cash flow, a solid management bench, and no desire to sell to private equity. The founder wants liquidity, but not a clean exit. Control still matters. Culture matters. Employees matter.

Instead of selling the entire company, the founder sells 30 percent of the outstanding shares to an ESOP for $12 million.

The ESOP does not show up with a suitcase of cash. The purchase is typically financed through a combination of third-party bank debt, a seller note, and future company cash flow. The company itself repays the ESOP debt over time, using profits it would have otherwise distributed or reinvested.

From the founder’s perspective, the transaction closes, liquidity is created, and a Section 1042 election is made. The $12 million in proceeds is reinvested into Qualified Replacement Property within the allowable timeframe. Capital gains that would have been immediately taxable are deferred.

Post-transaction, the founder still owns 50 percent of the company, retains voting control, and remains CEO. Employees now have a meaningful ownership stake, not in theory but economically. The company continues operating. No press release. No culture shock. No new overlords.

What has changed is the founder’s balance sheet. A single illiquid operating asset has been partially converted into a diversified, income-producing portfolio, while preserving upside in the remaining equity.

This is not an exit. It is a recalibration.

The Role of Qualified Replacement Property

The success or failure of a 1042 transaction often hinges on what happens after the sale.

Qualified Replacement Property must consist of securities issued by U.S. operating companies. This excludes most of what high-net-worth investors instinctively think of as diversification. Public market ETFs, mutual funds, real estate, private funds, and anything exotic are off the table.

In practice, sophisticated founders typically use custom-designed 1042 note structures that provide exposure across multiple operating companies, generate income, and avoid single-issuer concentration risk. The goal is not aggressive growth. It is stability, predictability, and alignment with long-term estate objectives.

This is where careful structuring and coordination are critical. Poorly constructed QRP portfolios create frustration. Well-constructed ones are designed to align with long-term planning objectives.

When This Strategy Makes Sense

A 1042 plan becomes compelling when the founder already thinks in long arcs. The business has dependable cash flow. The management team is capable of running without constant founder intervention. The founder wants liquidity but still cares deeply about the company’s future and people.

Transaction size matters. Below a certain threshold, the fixed costs and ongoing compliance simply don’t justify the structure. Above it, the economics become difficult to ignore.

Just as important is temperament. This strategy rewards patience, discipline, and coordination. Founders who want a clean break or immediate disengagement usually find this structure constraining rather than empowering.

When It Doesn’t

This approach breaks down quickly when the business is unstable, when conversion from an S-corp is rushed, or when the founder’s only motivation is tax savings. A 1042 plan layered onto a weak operating company or an unclear personal vision almost always disappoints.

This is not a financial product. It is an ownership philosophy wrapped in tax code.

Integrating a 1042 Plan with the Founder’s Estate Plan

Where Section 1042 becomes truly powerful is when it is intentionally woven into the founder’s estate plan.

Because capital gains are deferred on the QRP, the founder has flexibility in how wealth ultimately transfers. If the QRP is held until death, the embedded gain may receive a step-up in basis, effectively eliminating the original capital gains tax altogether. That alone can materially change how much wealth passes to heirs.

Beyond taxes, QRP assets can be placed into trusts, used to equalize inheritances among children who are and are not involved in the business, or paired with charitable strategies for further planning flexibility. Meanwhile, the remaining operating company shares can be transitioned separately, whether to family members, management, or eventually the ESOP itself.

In other words, a 1042 transaction can decouple liquidity planning from succession planning. That separation is often what allows founders to make better decisions in both domains.

The Bottom Line

Section 1042 is not clever. It is deliberate.

For the right founder, it offers a rare combination: liquidity without surrender, tax efficiency without gimmicks, and a way to align personal wealth planning with the long-term health of the business and the people inside it.

For the wrong founder, it is an expensive reminder that complexity does not create clarity.

The real question is never whether a 1042 plan is available. It is whether the founder is ready to think beyond the transaction and design an outcome that still makes sense twenty years from now. That’s where this strategy earns its keep.

If you have more questions about 1042 plans, contact our team of financial advisors in Denver today.

This information does not constitute legal advice. Prime Capital Financial and its associates do not provide legal advice. Individuals should consult with an attorney regarding the applicability of this information for their situations.

Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. Tax planning and preparation services are offered through Prime Capital Tax Advisory. PCIA: 6201 College Blvd., Suite 150, Overland Park, KS 66211. PCIA doing business as Prime Capital Financial | Wealth | Retirement | Wellness | Family Office | Tax Advisory.

2026-02-09
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