Your Business-Owner Client Is Maxing Out Their 401(k). What Should You Look at Next?
A business owner who maxes out a 401(k) may feel like they've checked the retirement-planning box. For a financial advisor, however, reaching the employee contribution limit can be the beginning of a much bigger conversation. Compensation, employer contributions, business cash flow, plan design, taxes, and the owner's timeline for eventually leaving the business can all affect what “maxing out retirement” really means.
For 2026, the employee elective deferral limit for most 401(k) plans is $24,500. Clients age 50 and older may generally make an additional $8,000 catch-up contribution, while a higher $11,250 catch-up limit applies for eligible participants ages 60 through 63.
For financial advisors working with business owners, though, this information doesn't necessarily answer the bigger question of, "Is the client using the business and its retirement plan as effectively as they could within their broader financial strategy?"
That's where financial advisors can add considerable value.
Maxing Out a 401(k) Isn't the Same as Maxing Out a Retirement Strategy
Clients sometimes talk about their retirement contributions as though there is one universal maximum.
In reality, there isn't.
The $24,500 limit applies to an employee's elective deferrals into most 401(k) plans in 2026. The IRS separately limits total annual additions to a participant's defined-contribution account. For 2026, that limit is generally the lesser of 100% of compensation or $72,000, excluding eligible catch-up contributions.
That bit of info can be particularly important for business owners because they may occupy two financial roles at once: employee and employer.
Once an owner reaches the employee deferral limit, it may be worth asking whether the company's retirement-plan structure, employer contributions, compensation and other planning opportunities have been reviewed together.
That doesn't mean the advisor should determine the appropriate contribution or recommend a particular tax strategy alone.
It means there are more questions to ask.
Start With the Business Owner's Compensation
For an employee, retirement planning can largely revolve around salary, savings rates and investment allocation.
A business owner's financial picture is often more complicated.
Their compensation may interact with business profitability, distributions, payroll, cash flow and taxes. Money retained in the business also competes with money available for retirement savings and personal financial goals.
That begs the question, "How much does the owner actually need the business to provide?"
An advisor may know that a client wants to retire with a particular level of income. However, the bookkeeping and tax records can reveal whether the business is currently generating enough sustainable cash flow to support the owner's compensation, retirement contributions and other goals simultaneously.
This is one reason the client's personal financial plan shouldn't be built separately from the financial reality of the company.
Then Look at What the Business Is Contributing
Reaching the employee contribution limit doesn't necessarily mean contributions to the client's retirement account have reached their overall limit.
Depending on the plan and the business's circumstances, employer matching or nonelective contributions may also be possible. The IRS treats these separately when applying the rules governing retirement-plan contributions.
For advisors, the opportunity isn't simply to tell a client, “You could save more.”
Instead, consider questions like:
How much is currently coming from the employee versus employer side?
Has the business's profitability changed substantially since the plan was established?
Has the client's compensation changed?
Does the business now have employees it didn't have when the plan was selected?
Is the owner trying to accelerate retirement savings as they approach an eventual exit?
Those questions can lead to a coordinated conversation with the client's tax professional and retirement-plan specialists.
Plus, they connect directly to another issue we've discussed: whether the retirement plan the client established years ago is still appropriate for the business they own today.
Don't Ignore What Additional Contributions Would Do to Cash Flow
There is another side to maximizing retirement contributions.
The money has to come from somewhere.
A highly profitable company can still experience periods of tight liquidity. Additional employer retirement contributions compete with payroll, taxes, debt service, inventory, expansion, equipment purchases and other demands on business cash.
This is where the advisor's understanding of the client's goals becomes particularly valuable.
Suppose the client wants to increase retirement savings substantially but also expects to:
purchase equipment,
hire additional employees,
acquire another company,
buy commercial real estate, or
take larger distributions from the business.
Those aren't separate conversations.
They're competing uses of capital.
Prior to making a major change to retirement contributions, the client and their professional team should understand how much cash the company can reasonably commit without creating pressure elsewhere.
A Growing Business May Need a Different Retirement Strategy
This is also where an existing retirement plan deserves another look.
The IRS recognizes several types of retirement arrangements for small businesses, including SEP plans, SIMPLE IRAs, 401(k)s and other qualified plans, with different contribution rules and requirements.
A structure chosen when someone was self-employed may not necessarily remain the natural fit once that person has a larger team.
Likewise, a business owner approaching retirement may have different priorities than they did when they were 40 and reinvesting nearly every available dollar into growth.
We've explored this issue more fully in Your Client Has a Retirement Plan. Is It Still the Right One for Their Business?.
The important point here for advisors is that plan design shouldn't necessarily be treated as a one-time decision.
As the company changes, the planning conversation can change with it.
Connect Retirement Contributions to the Client's Exit Timeline
For many business owners, retirement doesn't begin with a birthday.
It begins with a transition.
The owner might sell the company, transfer it to family members, bring in a partner, gradually reduce their role or retain ownership while stepping away from day-to-day operations.
That makes retirement saving particularly interesting in the years leading up to an exit.
The advisor should understand not only how much the client has accumulated in traditional retirement accounts, but also how much of the client's future financial security depends on the business itself.
As we discussed in Your Client Wants to Sell the Business. Is Their Financial Plan Ready?, a business sale can affect cash flow, investments, taxes, estate planning and retirement simultaneously.
Retirement contributions before that transition shouldn't be considered in isolation from it.
Five Questions Advisors Can Ask
You don't need to calculate employer contributions or determine the client's tax treatment yourself.
Instead, use the retirement-plan conversation to uncover information the client's broader professional team should evaluate.
Ask:
Are you maxing out your retirement plan because it's the right strategy, or simply because that's the number you've always targeted?
How much is the business contributing in addition to your employee contributions?
Has your compensation or business profitability changed significantly since this plan was established?
What else will the business need cash for over the next 12 to 24 months?
How does this retirement strategy fit with when and how you eventually want to leave the business?
The answers to these questions can help determine whether it's time to bring the client's CPA, plan professional and other specialists into the discussion.
As we've covered in our comprehensive guide to delivering tax planning without becoming a tax expert, the advisor doesn't have to supply every technical answer to make the conversation valuable.
The Contribution Limit Is a Starting Point
When a business-owner client tells you they've maxed out their 401(k), that's good information.
It just isn't the end of the conversation.
The more useful questions concern what the business can support, how the plan is structured, what the client's tax professionals see, what other goals require capital, and what the owner ultimately wants the business to do for their financial future.
That is where retirement planning becomes more than a contribution decision, but acts as part of the client's larger business, tax and wealth strategy.
When those questions cross into tax planning, our CPA in Your Pocket program gives financial advisors access to tax expertise that can support the wealth-planning conversations they're already having with business-owner clients. Schedule a free conversation to learn more.
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