September Is Not Too Late to Start a Retirement Plan
By Frank Gramlich, CPA | Xavier Financial Services
Some of the most productive conversations I have all year happen in the Fall. Fall is when I'm regularly sitting down with financial advisors and wealth management professionals on behalf of clients who've had a better year than they expected.
When a client's revenue surges unexpectedly, it opens the taxpayer up to potential for a significant, unwelcomed tax exposure. That's when having a CPA and a financial advisor working together makes a genuine difference. Each financial professional sees something the other doesn't. The result is usually a plan that's more comprehensive than either conversation would have produced alone.
Retirement accounts are often at the center of those conversations. The option of retirement plans available to self-employed individuals, and small business owners are those which W-2 employees simply don't have access to at the same scale. A W-2 employee contributing to their company's 401(k) can defer up to $23,500 in 2026. A self-employed business owner with a Solo 401(k) can contribute that same employee deferral, plus an employer contribution of up to 25% of net self-employment income on top of it. Combined, that can reach $70,000 in a single year. A SEP IRA offers a simpler structure with a contribution ceiling tied to the same 25% formula.
A strategic retirement contribution at this level can take a significant tax liability and reduce it substantially. Depending on the structure and the income, sometimes to near zero.
Take for example, a blanket $20,000 contribution to a retirement plan is good. However, knowing that your income structure allows for a $35,000, that you're able to absorb that contribution, and doing so would reduce your ultimate tax liability is even better!
There's a key timing element to understand: a Solo 401(k) plan must be opened by December 31 of the tax year it applies to. Contributions can be made through the filing deadline, but the plan has to exist first, and setup takes a few weeks. A SEP IRA can be opened and funded all the way through the filing deadline, including extensions. September is the right time to have this conversation regardless of which route you take.
If you had a strong year and haven't talked to anyone about it, that's the conversation to start now. Your CPA and your financial advisor looking at the same numbers and working in tandem, produces a different result than each one working alone.
