Gen X Clients Need Help Saving for Retirement. What’s The Cure?

The oldest members of Generation X are turning 60 this year, but many of them are not confident that their retirements will be just like heaven.

Data from Cerulli released in September showed that four out of five Gen X 401(k) participants don’t expect they’ll be able to maintain their current standard of living in retirement, and two-thirds of them have less than $100,000 in individual retirement assets, according to Cerulli. Gen X covers people born between 1965 and 1980, so there’s a wide range of ages, from those turning 60 this year to those who are 45. Education and outreach to this generation, which is known for being independent but also pragmatic, is critical to help them boost their savings. For advisors, working with these individuals can give a needed boost to their retirement readiness, and help provide clients with added value.

But it’s important to not treat this generation as a homogenous block, said Marc Fowler, director of retirement education at Human Interest. It’s also necessary to “nuance your strategy, your education outreach, etc., to be able to work not only with the folks who still have 20 years but also work with those folks who are really looking at retirement as a near-term option,” Fowler said.

Show Me How You Do That Trick 

Stephanie Nanney, partner at Private Vista, who works with plan sponsors, said it’s not surprising that Gen X lacks confidence because cumulative stock market performance between 1998 and 2008, when many had started investing, was negative overall. Being bookended by the dot-com crash and the Great Financial Crisis may have scared them away from contributing to their retirement plan.

To combat those fears, Matt Waters, partner and wealth advisor at Prime Capital Financial whose firm also works with plan sponsors, said the No. 1 thing he tells 401(k) investors is “just get started.” If participants are saving but at low levels, he’s found success with encouraging gradual increases, such as increasing savings rates by 1% every time someone gets a raise or bonus, or to mark their calendar to annually remind the person to increase their savings. Gradual increases are easier to handle, rather than touting the industry standard to save 15% to 20% of income, and appeal to Gen Xers’s pragmatic nature. “It’s the small, digestible steps that people can take that don’t hit their cash flow at home so dramatically,” he said.

For people who aren’t already maxing out their 401(k), suggesting catch-up contributions once they hit 50 isn’t helpful. Instead, he likes to show low savers the power of compounding interest and how just slowly increasing savings can make a difference. “We’ve worked with lots of participants. They look up 10 years (later) and they’re like, ‘Wow, I never thought I would ever have this much money.’ And it’s because of these little decisions that they were able to put in place years ago,” Waters said.

Whenever I’m Alone With You

The Gen X demographic is now the “sandwich” generation juggling competing savings goals and responsibilities, including saving for children’s education, saving for retirement and possibly caretaking. Olivia Le Blan, vice president at Douglass Winthrop, said she worked with a client who was 52 and was stressed about meeting both his retirement and his three kids’ educational savings goals. Her analysis showed that he should focus on his retirement savings first. “We basically told him, ‘You really have to secure your own oxygen mask before helping others,’” she said.

Dina Alongi Caggiula, head of participant experience at Vanguard, said because savers have multiple goals, looking at participants’ holistic financial picture helps them feel more confident. With retirement anywhere from five to 15 years out, Gen X may be reaching an “aha” moment when they realize they need to take their retirement savings much more seriously, said Krysta Dos Santos, head of financial planning at GenTrust. They may be more willing to work with financial advisors. A lack of confidence may prohibit Gen X from actively saving money, so building confidence is key, she said.

Nanney said advisors may be able to appeal to the practical, independent mindset of Gen Xers by reminding them to think about diversification and their risk profile, and stick with that, rather than chase market trends. Target date funds can appeal to those who may not want to be as engaged.

Friday, I’m in Love. Savings platforms should be designed so that participants feel in control of their financial future without being overwhelmed. Educational material can sometimes still be too advanced for plan participants. As an example, Fowler said he was at a recent conference where people were asking him the difference between traditional and Roth 401(k)s. Webinars and other material can be useful, but human interaction such as live enrollment meetings when a plan sponsor offers a new plan to employees is important, he said. It allows employees to learn about the plan, how it functions and enables people to ask individual questions.

Waters said advisors need to consider both the workforce and how to deliver education. “It’s not a suitable practice to just drive people to a website and expect that they’re going to be able to read about stocks and bonds … Most folks don’t have the bandwidth for that,” he said.

When Waters works with blue-collar companies, he may tag along to a safety meeting and speak for 15 minutes at the end. “There’s no magic bullet. It’s really a number of different things,” he said.

Instead, Caggiula encourages plan sponsors to look at recordkeepers’ data, which can provide insight into participant behavior, contact-center interactions and popular topics. She said plan sponsors that access Vanguard’s financial wellness assessment data can use it to make decisions about plan design choices such as auto enrollment, auto increase and target date funds. “All of those features pay dividends in making sure more participants can get to retirement readiness,” Caggiula said.

– Author: Debbie Carlson | Guest Contributor to The Daily Upside

Authored by Matt Waters

Every dollar an employee defers into a 401(k) plan is held in trust. It’s their money, not the employer’s. That’s why the Department of Labor (DOL) is laser-focused on when those dollars make it from payroll into the plan.

Late or missed deposits are one of the most common (and most expensive) compliance failures plan sponsors run into.

What Counts as “Late”?

The rule is simple in theory: employee contributions must be deposited as soon as reasonably possible after payroll.

• Large plans (100+ participants): usually within just a few business days.
  
• Small plans (<100 participants): the safe harbor deadline is 7 business days after payroll.
  

Translation: waiting until the 15th business day of the following month (a myth many payroll departments still believe) is not compliant.

Why Plans Miss the Deadline

1. Payroll/HR Disconnect
   
   • Payroll cuts checks, but no one triggers the contribution funding process.
     
2. Operational Bottlenecks
   
   • Employers “batch” deposits for convenience, leading to unnecessary delays.
     
3. System Errors
   
   • Recordkeeper or payroll integration issues cause deposits to lag.
     
4. Cash Flow Concerns
   
   • Rare but serious: employers intentionally delay deposits to hold onto cash. The DOL treats this like borrowing from employees’ retirement accounts.

The Consequences of Late Deposits

• Prohibited Transaction: The DOL considers late deposits a loan from the plan to the employer, which is an immediate compliance violation.
  
• Excise Taxes: Employers must pay a 15% excise tax on the “lost earnings” from the delay.
  
• Restoration: The plan sponsor must contribute missed earnings back into participant accounts.
• Audit Red Flag: Repeat offenses can trigger a full DOL investigation.

Correcting the Error

If a plan has late contributions, the fix involves three steps:

1. Deposit the Missed Contributions immediately.
   
2. Calculate and Restore Lost Earnings for each affected participant.
3. File under the Voluntary Fiduciary Correction Program (VFCP) if significant. This gives the employer a “clean bill” from the DOL once corrections are made.

Preventing Late Deposits

1. Automate Contributions
   
   • Use payroll integration with your recordkeeper so deposits happen automatically with each pay cycle.
     
2. Set Internal Deadlines
   
   • Don’t operate at the legal limit. Fund contributions within 1–2 business days after payroll.
     
3. Assign Responsibility
   
   • Designate a person (or team) to monitor contribution funding every pay period.
     
4. Periodic Spot-Checks
   
   • Review deposits quarterly to confirm they’re hitting the plan on time.

Bottom Line

Late contributions might sound like a harmless administrative slip, but regulators view them as misuse of employee money. Even a few days’ delay can trigger penalties, added costs, and participant frustration.

By automating deposits, setting internal deadlines, and monitoring regularly, sponsors can keep this issue off the compliance radar, and keep trust intact with employees.

Have questions about late 401(k) contributions? Reach our to our team of professionals at Prime Capital Financial Denver to see how we can help. 

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.

Authored by Matt Waters

If you’ve ever tried to freeze water in midair, you know it’s nearly impossible without perfect conditions. But when it comes to wealth, estate planners have figured out how to do exactly that. One of the most elegant ways to “freeze” the value of your estate and push growth to your heirs tax-efficiently is through a Grantor Retained Annuity Trust (GRAT).

GRATs are not new, but they’re experiencing a renaissance as families face historically high exemption levels and looming uncertainty around estate tax laws. For high-net-worth families looking to lock in tax efficiency, GRATs are a tool worth understanding.

What Is a GRAT?

A GRAT is an irrevocable trust into which a grantor (you) transfers appreciating assets. In exchange, the trust pays you back a fixed annuity stream for a set term.

• At the end of the term, any growth in excess of a small “hurdle rate” (set by the IRS, called the §7520 rate) passes to your heirs gift- and estate-tax free.
  
• If the assets don’t outperform the hurdle rate, the strategy simply “fails gracefully” — you’ve received your assets back through the annuity, and you’re no worse off.
  

In short: GRATs shift upside to heirs while minimizing downside risk.

Why GRATs Work

The IRS assumes that assets in a GRAT will grow at the §7520 rate (currently hovering around 5%). If your chosen assets grow faster than that, the excess growth passes outside your estate with no additional gift tax.

Example:

• You contribute $10M of stock to a GRAT.
  
• The IRS assumes it will grow at 5%.
  
• Over 10 years, the stock actually grows at 10%.
  
• That extra 5% of annual growth is “frozen out” of your estate and delivered to heirs tax-free.

The Benefits of GRATs

1. Low-Risk Strategy – If assets underperform, you simply get them back.
   
2. Tax-Efficient Transfer – All growth above the hurdle rate escapes estate taxation.
   
3. Repeatable – You can run “rolling GRATs” year after year to maximize efficiency.
   

Flexibility – You can use a wide variety of assets: concentrated stock positions, private business interests, or marketable securities.

Who Uses GRATs?

• Entrepreneurs pre-liquidity event who expect significant appreciation in their company stock.
  
• Families with concentrated stock positions looking to transfer upside efficiently.
  

UHNW clients with taxable estates seeking “soft landings” in estate planning.

Risks and Considerations

• Mortality Risk – If the grantor dies during the GRAT term, the strategy unwinds and assets come back into the estate.
  
• Interest Rate Sensitivity – Higher §7520 rates mean a higher hurdle to clear.
  

Irrevocable – Once funded, you can’t just pull assets back at will.

When GRATs Work Best

• Families with high-growth assets they’re confident will outperform the hurdle rate.
  
• Entrepreneurs who want to transfer future appreciation of their company at minimal tax cost.
  
• Clients comfortable with irrevocable planning and long time horizons.

Final Thoughts

GRATs are a classic example of how sophisticated estate planning can work with, not against, IRS rules. By transferring assets into a GRAT, you’re essentially betting that your portfolio (or business) will outperform the government’s assumption.

Have questions about GRATs? Reach our to our team of professionals at Prime Capital Financial Denver to see how we can help. 

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.

Authored by Matt Waters

Employer contributions are one of the most valuable parts of a 401(k) plan. They’re also one of the easiest areas for mistakes. Whether it’s a match, profit-sharing, or safe harbor contribution, the IRS and Department of Labor expect absolute precision. When the math, or the rules, go sideways, the result is compliance failures, costly corrections, and sometimes angry employees.

Here’s what every plan sponsor needs to know.

Common Ways 401(k) Contributions Go Wrong

Correcting the Mistakes

The IRS requires sponsors to fix errors through the Employee Plans Compliance Resolution System (EPCRS). The method depends on the size and nature of the mistake:

• Missed contributions: The employer generally must make a corrective contribution to the participant’s account, adjusted for lost earnings.
• Over-contributions: The excess is removed or reallocated, again with earnings adjustments.
• Improper vesting: Participants who were shortchanged must receive the additional vested balance they’re owed.

Time matters. The longer an error lingers, the more expensive the correction.

Strategies to Prevent Employer Contribution Errors

1. Align Payroll and Plan Definitions
   
   • Audit payroll codes to ensure they match the plan document’s definition of compensation.
2. Automate Where Possible
   
   • Integrate payroll with the recordkeeper to reduce manual entry errors.
3. Use Checklists for Contribution Cycles
   
   • Before each funding, confirm: employee eligibility, correct formula, correct compensation base.
4. Mid-Year Reviews
   
   • Don’t wait until year-end. Spot-check match and profit-sharing calculations during the year to catch problems early.
5. Employee Communication
   
   • Encourage participants to check their statements and ask questions. Employees often spot mismatches faster than administrators.
6. Regular Plan Audits
   
   • Work with a third-party administrator (TPA) or advisor to review contribution accuracy.

Bottom Line

Incorrect employer contributions may sound like a small administrative error, but the compliance and reputational risks are real. Every dollar in a 401(k) plan is held in trust for employees, and regulators take that responsibility seriously.

By aligning payroll with plan rules, automating processes, and proactively reviewing contributions, sponsors can prevent these errors before they become costly.

When in doubt, document everything, and partner with professionals who can help you get it right the first time.

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.

Authored by Matt Waters

For many high-net-worth families, giving back isn’t just a financial decision. It’s part of the family’s identity. But writing checks to charities every December isn’t the most strategic way to give. If you’re looking for a vehicle that combines tax efficiency, flexibility, and legacy building, you’ll want to know about Donor-Advised Funds (DAFs).

In fact, DAFs have quietly become a fast-growing charitable giving vehicle in the U.S., with billions flowing into them each year. And for good reason: they allow you to maximize deductions today, while giving you the freedom to decide when and how to support the causes you care about.

What Is a Donor-Advised Fund (DAF)?

A Donor-Advised Fund is a charitable investment account, administered by a public charity (like Fidelity Charitable, Schwab Charitable, or a community foundation). Here’s how it works:

1. Contribute Assets – You donate cash, appreciated stock, or even private business interests into the DAF.
   
2. Immediate Deduction – You receive a full charitable deduction in the year of contribution (subject to IRS limits).
   
3. Grow the Assets – The funds can be invested tax-free inside the DAF, allowing potential growth over time.
   
4. Recommend Grants – At your discretion, you “grant” funds out to IRS-qualified charities, whenever you choose.
   

The beauty? You get the tax deduction today, while retaining the ability to be thoughtful and strategic about the timing of your gifts.

Why High-Net-Worth Families Love DAFs

DAFs offer multiple advantages that go beyond simple philanthropy:

1. Front-Load Deductions in High-Income Years – If you have a big liquidity event (sale of a business, bonus, or stock vesting), you can offset income by making a large DAF contribution in that same year.
   
2. Donate Appreciated Securities Instead of Cash – By contributing appreciated stock, you avoid paying capital gains tax, while still getting the full charitable deduction.
   
3. Simplify Record-Keeping – Instead of tracking receipts from 20 charities, you make one gift to the DAF and then direct grants as needed.
   
4. Involve the Family – DAFs provide a platform to engage children in philanthropic discussions and decisions, creating a legacy of giving.
5. Invest for Growth – Unlike writing a check directly, funds inside a DAF can grow tax-free until you distribute them.

Case in Point

Imagine a client who sells a private business and realizes a $5 million gain in one year.

• Instead of giving $100,000 annually to charities, she contributes $1 million of appreciated stock to a DAF in the year of sale.
  
• She gets an immediate $1 million charitable deduction, potentially saving $370,000+ in federal income taxes (at the top bracket).
  
• She avoids capital gains on the stock contributed.
  
• Over time, she recommends grants of $100,000/year to her favorite causes, but now with more flexibility, and all from one account.
  

The result? She meets her charitable goals and optimizes her tax position in a high-income year.

Common Misconceptions About DAFs

• “I lose control of the assets.” – While technically true (the DAF sponsor is the legal owner), in practice, you retain advisory privileges on how funds are invested and where they’re granted.
  
• “I can only contribute cash.” – Wrong. You can often contribute publicly traded stock, restricted stock, real estate, and even private business interests (with proper structuring).
• “It’s only for billionaires.” – Not anymore. Minimums vary, but many DAFs allow entry at $5,000–$25,000.

Advanced Planning Strategies with DAFs

For ultra-high-net-worth families, DAFs are just the beginning:

• Pairing with a Charitable Remainder Trust (CRT): A CRT provides income for life and a remainder gift to charity, while the DAF can serve as the ultimate beneficiary.
  
• DAF-to-DAF Legacy Transfers: Some families set up multiple DAFs to allow children to direct charitable dollars independently.
  
• Bunching Deductions: By front-loading contributions into a DAF in one year, you can maximize itemized deductions, then take the standard deduction in off years.
• Sunset Giving Strategy: If you want to see the impact of your philanthropy during your lifetime, a DAF allows you to accelerate giving in a structured way.

When a DAF Might Not Be the Best Fit

• If you want to retain direct legal control (a private foundation may be more appropriate).
  
• If you need to employ family members in charitable work.
  
• If you’re planning to make extremely large gifts ($50 million+) and want maximum flexibility on governance.
  

For most high-net-worth families, though, a DAF offers the perfect balance of efficiency, tax savings, and simplicity.

Final Thoughts

Philanthropy is about more than taxes. It’s about impact and legacy. But with Donor-Advised Funds, you don’t have to choose between generosity and smart planning.

For high-net-worth individuals, a DAF creates an elegant bridge: immediate tax efficiency today, coupled with thoughtful giving tomorrow. If charitable giving is part of your wealth plan, this is a strategy worth putting on the table.

Have questions? Reach our to our team of professionals at Prime Capital Financial Denver to see how we can help. 

This information does not constitute legal or tax advice. Prime Capital Investment Advisors, (“PCIA”) and its associates do not provide legal or tax advice. Individuals should consult with an attorney or professional specializing in the fields of legal, tax, or accounting 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. PCIA: 6201 College Blvd., Suite#150, Overland Park, KS 66211. PCIA doing business as Prime Capital Financial | Wealth | Retirement | Wellness | Family Office. 

Authored by Matt Waters

One of the most common compliance headaches for 401(k) plans is failing the ADP/ACP nondiscrimination tests. These tests are designed to ensure that highly compensated employees (HCEs), including owners, executives, and other top earners, aren’t the only ones benefiting from the plan while rank-and-file employees are left behind.

When a plan fails, the fallout can mean frustration for owners, tax headaches for employees, and extra administrative work. Let’s break it down.

How the Tests Work

• ADP (Actual Deferral Percentage) Test: Compares the average salary deferral rates of HCEs to those of non-HCEs.
  
• ACP (Actual Contribution Percentage) Test: Compares the average employer match and after-tax contribution rates of HCEs to those of non-HCEs.
  

Both tests limit how much more HCEs can contribute, relative to the rest of the workforce.

In practice: if lower-paid employees contribute little or nothing, the plan often fails because the averages for HCEs are disproportionately high.

Why Plans Fail

1. Low participation among non-HCEs
   
   • Employees either don’t understand the plan or don’t feel financially able to contribute.
2. High contributions from HCEs
   
   • Owners and executives max out contributions, but staff lags behind.
3. Plan design issues
   
   • No auto-enrollment, no match incentive, or outdated provisions that don’t encourage broad participation.

Correcting a Failed Test

If your plan fails, the IRS requires timely correction. The main options are:

1. Refunds to HCEs
   
   • Excess contributions (plus earnings) are returned to HCEs until the test passes.
     
   • Downside: Owners and executives lose tax-deferred savings, and the refunds are taxable.
2. Qualified Non-Elective Contributions (QNECs)
   
   • The company makes extra contributions to non-HCEs to raise their average and bring the plan into compliance.
     
   • These contributions are 100% vested and costlier for the employer, but they preserve HCEs’ full contributions.
     

Both corrections are time-sensitive. Missed deadlines can lead to penalties or even plan disqualification.

Plan Design Strategies to Prevent Failures

The best strategy isn’t fixing failures, it’s avoiding them altogether. Here are proven approaches:

1. Safe Harbor 401(k) Plans
   
   • The gold standard for avoiding ADP/ACP testing.
     
   • Employer makes a required contribution (either a match or 3% of pay to all employees), and in return, the plan is deemed to automatically pass the tests.
2. Automatic Enrollment & Escalation
   
   • Automatically enroll new hires at a set deferral rate (e.g., 4%) with annual increases.
     
   • Dramatically boosts non-HCE participation and test results.
3. Enhanced Employer Match
   
   • Instead of a flat match (e.g., 50% up to 6%), consider structures that encourage employees to contribute more (e.g., 100% up to 4%).
4. Targeted Education & Communication
   
   • Employees often don’t participate simply because they don’t understand the benefit.
     
   • Providing financial wellness programs, education, and one-on-one guidance can increase deferrals.
5. Regular Compliance Reviews
   
   • Proactive monitoring throughout the year helps spot issues early and allows for mid-year adjustments before testing season.

Bottom Line

ADP/ACP failures are frustrating, but they’re not the end of the world. With timely corrections and smart plan design, employers can avoid annual headaches while ensuring that both executives and employees benefit from the plan.

For many business owners, the best move is adopting a safe harbor plan or integrating auto-enrollment features to keep participation healthy.

When your retirement plan is designed correctly, you not only stay compliant. You create a benefit that attracts and retains talent.

Have questions? Reach our to our team of professionals at Prime Capital Financial Denver to see how we can help. 

This information does not constitute legal or tax advice. Prime Capital Investment Advisors, (“PCIA”) and its associates do not provide legal or tax advice. Individuals should consult with an attorney or professional specializing in the fields of legal, tax, or accounting 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. PCIA: 6201 College Blvd., Suite#150, Overland Park, KS 66211. PCIA doing business as Prime Capital Financial | Wealth | Retirement | Wellness | Family Office. 

Authored by Matt Waters

Let’s face it: When it comes to retirement plans for small businesses, the IRS has cooked up a veritable alphabet soup — SEPs, SIMPLEs, 401(k)s — and sorting through them feels about as fun as decoding a government manual.

But here’s the truth: Choosing the right plan isn’t just about compliance. It’s about aligning your retirement strategy with your growth goals, talent strategy, and tax planning. So whether you’re running a lean LLC, scaling a high-growth startup, or managing a mature business with employees who’ve been with you longer than your golf clubs, here’s how to think about your options.

1. SEP IRA: The “Set It and Forget It” for Solo Operators

Best For: Self-employed individuals or business owners with zero or very few employees.

What It Is: A SEP (Simplified Employee Pension) is essentially a turbo-charged IRA that allows employers to make tax-deductible contributions to themselves and their employees.

Why It Works:

• Insanely simple to set up (like, less paperwork than renewing your driver’s license).
  
• Generous contribution limit — up to 25% of compensation or $69,000 in 2024.
  
• Employer-only contributions. No employee deferrals. You call the shots.

But Watch Out For:

• If you have employees, you must contribute the same percentage of their salary as you do for yourself. Equality is non-negotiable here.
  
• No Roth option. Sorry, tax-free growth fans.

Bottom Line: Great for solopreneurs or consultants who want to save big without administrative headaches. If you’ve got a growing team, though, it’s less attractive — unless you’re feeling unusually generous.

2. SIMPLE IRA: The “Middle Child” of Retirement Plans

Best For: Small businesses with fewer than 100 employees that want a basic plan with employee contributions.

What It Is: The Savings Incentive Match Plan for Employees (SIMPLE) is what you get when an IRA and a 401(k) have a baby — simple-ish, but not without quirks.

Why It Works:

• Easy to set up and maintain — just slightly more involved than a SEP.
  
• Employees can contribute up to $16,000 in 2024 (plus a $3,500 catch-up if 50+).
  
• Employers must either match up to 3% of salary or do a 2% flat contribution to all eligible employees.

But Watch Out For:

• Contribution limits are lower than a 401(k), which can be a dealbreaker for high earners.
  
• No profit sharing or advanced plan design.
  
• Withdrawals within two years of participation = 25% penalty. Yes, 25%. Brutal.

Bottom Line: A decent option for small shops that want to offer something, but not ideal if you’re trying to max out savings or attract higher-income talent.

3. 401(k): The Swiss Army Knife of Retirement Plans

Best For: Growing businesses that want flexibility, high savings limits, and the ability to attract/retain talent.

What It Is: The 401(k) is the gold standard for retirement plans — customizable, scalable, and IRS-approved for serious tax strategy.

Why It Works:

• Employees can contribute up to $23,000 in 2024, plus a $7,500 catch-up if 50+.
  
• Employer contributions on top of that, up to a total of $69,000 ($76,500 with catch-up).
  
• Roth option? Yep. Profit sharing? You bet. Safe harbor, vesting schedules, automatic enrollment? All on the menu.

But Watch Out For:

• More admin and compliance (hello, nondiscrimination testing and 5500 filings).
  
• Higher costs — but in many cases, worth every penny.
  
• You need an advisor who knows what they’re doing (ahem) to design it right.

Bottom Line: If you’re trying to build a best-in-class business, your retirement plan should reflect that. The 401(k) gives you the tools to reward key people, defer taxes, and create serious long-term value. Yes, it’s more complex — but so is running a successful business.

Quick Comparison Table:

Final Thoughts: The Plan Should Fit the Vision

If you’re a business owner, your retirement plan isn’t just a savings tool — it’s a business decision. It’s how you:

• Maximize tax efficiency
  
• Attract and retain talent
  
• Reward key players
  
• Build wealth outside the business

So don’t settle for “default” or “simple” just because it’s easy. Choose the plan that reflects where you are and where you’re headed.

If you’re not sure which one that is, it might be time for a real conversation, and not with your CPA who moonlights as a golf partner. Speak with someone who can help architect a long-term financial strategy that fits your business like a glove.

This information does not constitute legal or tax advice. Prime Capital Investment Advisors, (“PCIA”) and its associates do not provide legal or tax advice. Individuals should consult with an attorney or professional specializing in the fields of legal, tax, or accounting 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. PCIA: 6201 College Blvd., Suite#150, Overland Park, KS 66211. PCIA doing business as Prime Capital Financial | Wealth | Retirement | Wellness.

Authored by Matt Waters

Most people hear “Roth IRA” and assume it’s a quaint little $7,000-per-year retirement tool for recent college grads. And for the average W-2 employee, that’s mostly true. But if you’re a business owner or high earner with access to a 401(k) plan—and especially if you control that plan—you might be sitting on a generous retirement tax planning loophole.

Let me introduce you to the Mega Backdoor Roth. It’s big. It’s beautiful. And if you’re not using it, you may be leaving some serious long-term tax alpha on the table.

First, a Quick Primer on Roths

A Roth account allows for after-tax contributions, tax-free growth, and tax-free withdrawals in retirement. Translation: you pay taxes today, but your future retirement self will thank you profusely.

The problem? Contribution limits are low. In 2025:

• Roth IRA: $7,000 ($8,000 if you’re over 50)
• Roth 401(k): $23,000 ($30,500 if over 50)

Nice, but not game-changing. Enter the Mega Backdoor Roth.

What Is the Mega Backdoor Roth?

The Mega Backdoor Roth is a strategy that allows high-income earners to potentially contribute up to $46,000 or more extra per year into a Roth account using their 401(k) plan. Here’s how it works in plain English:

1. Make after-tax contributions to your 401(k) beyond the standard $23,000 employee deferral.
2. Immediately convert those after-tax dollars into a Roth 401(k) or Roth IRA (either inside or outside the plan).
3. Sit back and watch that money grow tax-free forever.

The maximum total 401(k) contribution in 2025 (employee + employer + after-tax) is $69,000 ($76,500 if 50+). Once your regular deferrals and employer contributions are accounted for, you can fill the gap with after-tax dollars and convert them.

Let’s break that down with an example.

Mega Backdoor Roth in Action

Let’s say you’re under 50 and have a solo 401(k) as the owner of your business:

• Employee deferral: $23,000
• Employer profit sharing: $20,000
• After-tax contribution: Up to $26,000 more
• You convert that $26,000 to a Roth

Boom. That’s an additional $26,000 of Roth exposure every year, with no income limit and no Roth IRA phase-outs.

Now imagine doing this annually for 10 years. That’s $260,000 growing tax-free. And that doesn’t even include compounding.

Why It Works (and Why Most People Miss It)

The Mega Backdoor Roth isn’t a loophole in the shady, offshore trust kind of way. It’s a legitimate strategy baked into IRS rules. But it requires a few key ingredients:

• A 401(k) plan that allows after-tax contributions
• In-plan Roth conversions or in-service withdrawals to a Roth IRA
• Ideally, fast conversion to minimize any growth on after-tax dollars (to avoid taxation on earnings)

Most off-the-shelf 401(k) plans don’t support this. But if you own your business or are working with a fiduciary plan advisor who knows how to engineer this, it’s entirely doable.

Who Should Consider the Mega Backdoor Roth?

This isn’t for everyone. But it may be ideal for: 

• High-income earners who’ve maxed out traditional Roth and pretax contributions
• Business owners who control their 401(k) plan design
• Solo 401(k) participants (the cleanest implementation)
• S-corp owners who want to reduce W-2 wages but still maximize tax-free savings
• Executives at companies with custom 401(k) plans

If you’re just using the “standard” 401(k) plan design from a payroll provider, you’re probably missing this opportunity.

Mega Backdoor Roth vs Backdoor Roth IRA

Let’s clear up some jargon. The Backdoor Roth IRA is the smaller cousin, limited to $7,000–$8,000/year and subject to the pro-rata rule if you have other IRAs. Still useful, but tiny in comparison.

The Mega version is much more powerful and sits inside the 401(k) universe, allowing much larger contributions without those pesky income limits or pro-rata issues. They’re completely different beasts.

A Word of Caution: Read This Before You Go Mega

The Mega Backdoor Roth can be a powerful tool, but it’s not set-it-and-forget-it. There are a few key pitfalls that can trip up even the savviest plan sponsors:

1. Plan Design is Everything

Most 401(k) plans aren’t built to handle this. You’ll need custom language to allow:

• After-tax contributions (separate from Roth deferrals)
• In-plan Roth conversions or in-service withdrawals

If your provider gives you a blank stare when you bring this up, it’s time to upgrade your advisory team!

2. Nondiscrimination Testing Can Derail You

If your plan covers more than just owners or execs, the IRS cares a lot about fairness. After-tax contributions are subject to ACP testing, and if only your highly compensated employees are using this strategy, you may fail.

That means:

• Refunds of those Roth contributions
• Administrative headaches
• Potential compliance issues

You can mitigate this with:

• A safe harbor plan
• Thoughtful plan design and testing strategy
• Or just doing it right from the start

3. Convert Quickly or Lose Tax Efficiency

If you delay the Roth conversion, any investment growth on the after-tax contributions becomes taxable. Automate conversions monthly or quarterly to keep things clean and tax-free.

Want to Explore This?

If you’re a business owner or executive and want to know whether your current 401(k) plan allows this (and how to integrate it) reach out. We help clients redesign plans for flexibility, tax efficiency, and generational wealth building.

Because when it comes to retirement planning, the tax code doesn’t reward the uninformed. But can potentially reward those who know where to look.

If you’re ready to explore how these tools could serve your family’s long-term goals, let’s talk.

Disclosures: This information does not constitute legal or tax advice. PCIA and its associates do not provide legal or tax advice. Individuals should consult with an attorney or professional specializing in the fields of legal, tax, or accounting 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. PCIA: 6201 College Blvd., Suite#150, Overland Park, KS 66211. PCIA doing business as Prime Capital Financial | Wealth | Retirement | Wellness.

Authored by Matt Waters

When your net worth reaches a certain altitude, estate planning stops being about “who gets the house” and becomes more about tax law, legacy planning, and protecting your wealth from the three biggest threats: the IRS, your heirs’ bad decisions, and their future ex-spouses.

Trusts are the Swiss Army knife of estate planning—flexible, powerful, and dangerously underused by families who assume their assets are too “simple” or that “the kids will figure it out.” Here’s the truth: if you have significant wealth, not using trusts is like golfing Augusta without a caddie. You can, but why would you?

Let’s break down the essential trust strategies every high-net-worth family should consider:

1. Revocable Living Trust – The Entry Ticket

Purpose: Probate avoidance and asset consolidation.

For all its flexibility, a revocable living trust doesn’t save you any taxes—it simply avoids probate, keeps things private, and makes it easier to manage your assets in case of incapacity or death. For affluent families, this is Estate Planning 101.

Pro tip: Fund the trust during your lifetime. An unfunded trust is like a safe with the door wide open.

2. Irrevocable Life Insurance Trust (ILIT)

Purpose: Keep life insurance proceeds out of the taxable estate.

Life insurance proceeds are income-tax-free, but not estate-tax-free. That million-dollar policy you bought in your 30s? It just became part of your taxable estate. An ILIT solves that by owning the policy outside of your estate.

Advanced move: Use ILITs to equalize inheritances when business interests or illiquid assets are being divided among children.

3. Grantor Retained Annuity Trust (GRAT)

Purpose: Transfer appreciating assets with minimal gift tax.

Perfect for clients with concentrated stock or rapidly appreciating assets (think founders, early execs, or savvy real estate investors). You retain an annuity for a set term; anything left over after that period passes to beneficiaries—ideally after tax values have skyrocketed.

Heads-up: GRATs are a “use it while you can” strategy. Congress has flirted with shutting this down for years.

4. Spousal Lifetime Access Trust (SLAT)

Purpose: Remove assets from the estate while keeping spousal access.

Think of SLATs as a trust-fund prenup. One spouse gifts assets to a trust for the benefit of the other spouse, removing the assets from the taxable estate but still retaining access (indirectly) through the beneficiary spouse.

Watch your step: If both spouses create SLATs for each other, beware of the “reciprocal trust doctrine”—the IRS is watching.

5. Dynasty Trust

Purpose: Preserve wealth across multiple generations—and beat the estate tax system.

Dynasty trusts can last for 100+ years in certain states, allowing assets to grow free from estate taxes through multiple generations. Used well, they become the family’s private endowment.

Best used for: Families who want to instill values, fund education, protect from creditors, and avoid “lottery winner syndrome” in future generations.

6. Charitable Remainder Trust (CRT)

Purpose: Turn a taxable asset into income + a charitable deduction.

You contribute an appreciated asset, get a partial income tax deduction, receive income for life, and the remainder goes to charity. This is a triple-play: income tax deferral, estate tax reduction, and philanthropic legacy.

Pro insight: Pair this with a Donor Advised Fund or Private Foundation if you’re building a family giving strategy.

7. Intentionally Defective Grantor Trust (IDGT)

Purpose: Freeze your estate, shift growth to heirs, and arbitrage tax rules.

“Defective” on purpose, these trusts allow the grantor to pay income taxes on behalf of the trust—essentially making tax-free gifts to beneficiaries by footing the IRS bill. They’re ideal for asset sales to the trust, often using promissory notes.

Translation: You get estate tax benefits without triggering gift tax. Not for the faint of heart—but wildly effective.

A Word on State Law and Situs Shopping

Not all states treat trusts equally. Some states (South Dakota, Nevada, Delaware, Alaska) offer more favorable asset protection, longer trust durations, and better privacy. You don’t have to live in those states—you just need a trustee who does.

Lesson: If you’re picking a state to domicile your trust, shop smarter than you would for ski gear. Situs matters.

Final Thoughts: Don’t DIY a Dynasty

High-net-worth estate planning is not the time for legal Zooms and cocktail party strategies. It requires deep coordination between your attorney, financial advisor, CPA, and (frankly) your family therapist.

The right trust strategy doesn’t just save taxes – it can secure your legacy, help to preserve family harmony, and have your wealth work for the people you love, not against them.

If you’re ready to explore how these tools could serve your family’s long-term goals, let’s talk.

Disclosures: This information does not constitute legal or tax advice. PCIA and its associates do not provide legal or tax advice. Individuals should consult with an attorney or professional specializing in the fields of legal, tax, or accounting 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. PCIA: 6201 College Blvd., Suite#150, Overland Park, KS 66211. PCIA doing business as Prime Capital Financial | Wealth | Retirement | Wellness.