Bottom Line Up Front

• You can contribute to both a SIMPLE IRA and a 401(k) in the same year, but your employee salary-deferral limit is shared across both plans — for 2026, that combined cap is $24,500, not two separate maximums. 
• Business owners cannot simply run both plans side by side — to switch from a SIMPLE IRA to a 401(k), the SIMPLE IRA must be terminated, either at year-end or mid-year under SECURE 2.0’s safe harbor 401(k) replacement rules. 
• A mid-year switch comes with a prorated deferral limit, meaning if you’ve already contributed heavily to the SIMPLE IRA, your remaining 401(k) employee deferral room for that year will be reduced — though employer contributions can help close the gap toward the $72,000 annual additions limit. 

Yes, you can contribute to a SIMPLE IRA and a 401(k) in the same year if you are eligible for both plans, such as when you change jobs, work for two unrelated employers, or have a job plus self-employment income. But there’s a catch: your employee salary-deferral limit is shared across both plans. You do not get to contribute to the full SIMPLE IRA employee limit and the full 401(k) employee limit separately. 

For 2026, the general employee deferral limit for a traditional or safe harbor 401(k) is $24,500, and the general SIMPLE IRA salary-reduction limit is $17,000. The IRS states that if you participate in a SIMPLE IRA and another employer plan in the same year, the total salary-reduction contributions you make across all such plans are limited to $24,500 for 2026, before any applicable catch-up contributions. 

Can a Business Owner Switch from a SIMPLE IRA to a 401(k) and Contribute in the Same Year?

For many small business owners, a SIMPLE IRA is a good starter retirement plan. It is relatively easy to set up, inexpensive to operate, and generally does not require the employer to file an annual Form 5500. But once your business is profitable enough that you want to contribute much more for yourself, the SIMPLE IRA can start to feel limiting. The 401(k), especially when paired with employer profit-sharing contributions, can offer a much higher ceiling. 

For 2026, the annual 401(k) employee elective deferral limit is $24,500, while the total annual additions limit for a 401(k) or profit-sharing plan is $72,000, not counting catch-up contributions. By comparison, the general SIMPLE IRA employee salary-reduction limit is $17,000 for 2026, with required employer contribution typically limited to a 3% match or a 2% nonelective contribution formula. 

So, can you contribute to a SIMPLE IRA and a 401(k) in the same year if you own the business  and want to switch plans? The answer is: sometimes, but not by simply running both plans side by side. 

The key point to make the switch from a SIMPLE IRA to a 401(k) is that the 401(k) must replace the SIMPLE IRA, you cannot simply add a 401(k) on top of an existing SIMPLE IRA. 

How Do You Switch from a SIMPLE IRA to a 401(k)? 

There are two practical ways to move from a SIMPLE IRA to a 401(k): 

The first is the clean year-end switch. You discontinue the SIMPLE IRA effective January 1 and start the 401(k) for the new plan year. The IRS says that, for a standard SIMPLE IRA termination, you notify employees before November 2 that the SIMPLE IRA will be discontinued effective the following January 1, notify the financial institution and payroll provider, and keep records of your actions. 

But let’s say you add a few big customers, and you want to start getting the bigger tax deduction this year. The second option is a mid-year replacement. Under SECURE 2.0 for plan years beginning after 2023, an employer can terminate a SIMPLE IRA during the year if it establishes and maintains a safe harbor 401(k) to replace it – it will require a 30 day notice vs the traditional 60 day notice for a January 1st plan change. In that case, the safe harbor 401(k) is treated as an exception to the normal rule that prevents an employer from maintaining both a SIMPLE IRA and another plan in the same calendar year. 

For a business owner whose main goal is to contribute the full $72,000 between employee and employer contributions, the cleanest planning route is usually to terminate the SIMPLE IRA at year-end and start the 401(k) on January 1. For some it may be worth the extra effort to make the switch immediately and take advantage of the added contributions and tax deductions a 401(k) offers. 

Want to Upgrade Your SIMPLE IRA to a 401(k) Plan in 2026?

What Happens if You Switch from a SIMPLE IRA to a 401(k) Mid-Year?

A mid-year switch is possible, but it is not as simple as saying, “I contributed to the SIMPLE IRA for part of the year, now I’ll contribute the full 401(k) maximum.” 

When a SIMPLE IRA is replaced mid-year by a safe harbor 401(k), the IRS requires the employee deferral limit for the transition year to be calculated using a weighted formula. The formula prorates the SIMPLE IRA limit for the part of the year the SIMPLE IRA was in effect, prorates the 401(k) limit for the part of the year the safe harbor 401(k) was in effect, and then subtracts any SIMPLE IRA salary-reduction contributions already made that year.

For example, assume the SIMPLE IRA is in place from January 1 through June 30, 2026, and the safe harbor 401(k) starts July 1. Ignoring catch-up contributions, the weighted employee deferral limit would be approximately:

This creates a combined transition-year deferral limit of about $20,781, minus whatever you already deferred into the SIMPLE IRA.

If you had already deferred the full $17,000 into the SIMPLE IRA before the switch, your remaining employee deferral room for the 401(k) would be only about $3,781 in this example.

That does not necessarily mean the $72,000 goal is impossible, but it does mean the employee-deferral portion may be smaller, and more of the contribution would need to come from the employer side if allowed. In addition, a mid-year 401(k) can create short-plan-year or short-limitation-year issues, and the IRS notes that the Section 415 annual additions limit may need to be prorated in a short limitation year depending on how the plan is drafted.

Key Takeaways: Moving a SIMPLE IRA to a 401(k)

Switching from a SIMPLE IRA to a 401(k) can be an effective way for business owners to increase retirement contributions and potentially generate larger tax deductions. However, the transition must be handled carefully. In most cases, you cannot simply add a 401(k) on top of an existing SIMPLE IRA without first terminating or replacing the SIMPLE IRA according to IRS rules. 

While a 401(k) generally involves more administration and recordkeeping than a SIMPLE IRA, the increased contribution flexibility may make the additional complexity worthwhile. If you’re considering making the switch, it’s important to coordinate with your retirement plan advisor, TPA, payroll provider, and tax professional to ensure the transition is completed correctly and to maximize available contribution opportunities. 

Frequently Asked Questions

Can I max out both a SIMPLE IRA and a 401(k) in the same year?
No. The employee salary-deferral limit is generally shared across both plans, so you cannot contribute the full employee maximum to each separately.

Can I have a SIMPLE IRA and a 401(k) at the same time?
Generally, an employer cannot maintain both plans simultaneously unless a specific exception applies, such as the SECURE 2.0 mid-year replacement rules.

Is it worth switching from a SIMPLE IRA to a 401(k)?
For many growing businesses, a 401(k) provides significantly higher contribution opportunities and greater plan design flexibility, though it comes with additional administrative responsibilities.

The post Can I Contribute to a SIMPLE IRA and 401(k) in the Same Year? appeared first on Odyssey Advisors, Inc.

Bottom Line Up Front

• IRMAA (Medicare Income-Related Monthly Adjustment Amount) imposes additional premiums for Medicare Part B and Part D based on income.
• Individuals with Modified Adjusted Gross Income (MAGI) exceeding $109,000 for single filers or $218,000 for joint filers are subject to IRMAA premiums, which can be appealed in case of life changing events.
• Strategies to manage and mitigate IRMAA premiums include timing income events to minimize spikes in MAGI, employing tax-efficient investment strategies, leveraging health savings accounts (HSAs), making qualified charitable distributions (QCDs) from IRAs, and seeking advice from financial professionals and tax advisors.

If you’re approaching retirement and looking at Medicare, you may want to be aware of the Medicare Income-Related Monthly Adjustment Amount (“IRMAA”). The short answer is that the Social Security Administration (“SSA”) sets an additional income based premium for both Medicare Part B (provider coverage) and Medicare Part D (prescription drug coverage).

What Are The Key Things I Need to Know?

• Income based premiums – Unlike health insurance at your employer or in the private market, your premiums are based on your income. For 2026, the “standard” Medicare Part B premium s $202.90 per month (indexed each year). For higher income individuals, you are subject to an additional IRMAA premium which is based on your tax filing status and Modified Adjusted Gross Income (“MAGI”) from two years earlier (e.g., 2024 MAGI for 2026 Medicare premium rates).
• Appeals process for lower IRMAA assessment – If you’ve had a life changing event (e.g., marriage, divorce, reduced income, etc.), you can appeal for a reduction in your IRMAA premium.
• Income levels subject to IRMAA – If your 2024 MAGI was more than $109,000 for a single filer or $218,000 for a joint filer, you are subject to the IRMAA premiums for your Medicare Part B and Medicare Part D coverages.
• Tax filing status – Note that the IRMAA premiums based on filing status are for each individual’s Medicare coverage.
• Notification – The SSA will end with a notice each year to beneficiaries that details the determined rate.

What Are The 2026 IRMAA monthly Premiums?

What If I’m In Medicare Advantage (Medicare Part C)?

Medicare Advantage plans usually offer prescription drug coverage (e.g., roll in Part D coverage). As such, you’re subject to Medicare Part D IRMAA surcharge even if you’re in Medicare Advantage plan.

What Are The Ways To Avoid Or Mitigate IRMAA Premiums?

Given that these premiums are based on your modified adjusted gross income from two (2) years prior, it’s important to manage your MAGI to the extent possible.

• Income Timing – Consider timing large income events, such as selling property or taking large retirement account distributions, to minimize spikes in MAGI.
• Tax Planning – Use tax efficient investment strategies to lower your MAGI. This could involve investing in Roth IRAs (for which withdrawals are tax-free) or managing capital gains and losses.
• Life-Changing Events – If you experience a life-changing event that reduces your income (such as retirement, divorce, or death of a spouse), you can appeal the IRMAA decision with the SSA. This is formally known as a “new initial determination.”
• Health Savings Account (HSAs) – Contributions to HSAs can reduce your MAGI, potentially lowering or eliminating IRMAA charges.
• Charitable Contributions – If you’re over 70½, consider making Qualified Charitable Distributions (QCDs) from your IRA. These distributions can satisfy required minimum distributions (RMDs) without increasing your MAGI.

Given that this is just one element of your retirement expenses, it’s important to consult with your financial professionals and tax advisors to ensure that any decisions fit your overall objectives.

If you have questions, we’d be happy to help. You can reach me or another Odyssey consultant by dropping us a message here.

WHENEVER YOU’RE READY, HERE ARE THREE WAYS WE CAN HELP:

1. Minimize your liabilities with a comprehensive OPEB valuation here. 
2. Get a free review of your last valuation here.
3. Get to know all of your options (including if making the switch to Medicare would work for you) with a benefits plan analysis here.

The post What’s The Deal With IRMAA? appeared first on Odyssey Advisors, Inc.

Bottom Line Up Front

• Making contributions to your company’s 401(k) plan and then transferring the balance to a Roth 401(k) can allow you to increase contributions and help decrease your taxes.
• In 2026, a participant can contribute up to $24,500 from their pre-tax earnings and up to $47,500 after taxes into their 401(k) plan for a total of up to $72,000 (indexed) — not including catch-up contributions.
• The Mega Roth Backdoor IRA can be effective under a plan with ideal demographics and generous employer contributions to save more in a Roth IRA or Roth 401(k) than you would normally be able to.

You know that Mega Backdoor Roth thing your friend mentioned or that you stumbled across online? The one where you can make substantial contributions to your employer-sponsored 401(k) plan and then transfer them to a Roth 401(k) essentially saving you more on taxes in the long run. It may sound too good to be true, but it can work wonders for those who qualify and are in the right plan. It’s especially helpful if you’d typically be unable to contribute to a Roth account due to exceeding income limits. 

The Logistics

Under the IRS Code, 401(k) plans have a variety of contribution limits (excluding catch-up contributions):

• Employee Deferral – $24,500 for 2026 (indexed)
• Maximum Account Addition – $72,000 for 2026 (indexed)

Beyond that, 401(k) plans have various non-discrimination rules to ensure that the plan does not overly benefit highly compensated employees (“HCEs”). As it relates to this situation, the key testing is the ADP/ACP test.

As an example – we have a small company with two (2) owners and five (5) employees. The plan has reasonable participation with the employees on average contributing 7.14% of their pay and an employer match of 50% up to 6.0% of pay deferred yielding a Non-Highly Compensated Employee (“NHCE”) Average Contribution Percentage (“ACP”) of 2.40% for our NHCE group.

Based on these figures our owner’s contributions of 9.08% as employees and the employer match ACP of 3.00% allows them to easily pass our ADP & ACP tests.

Now, let’s add an after-tax feature to our plan. The owners see that they are far from their $72,000 total contribution limit and they have additional money they’d like to save for retirement. Owner 1 contributes the full $38,500 of that potential $38,500 available to maximize their account to the after-tax source in the plan. It’s important to remember that after-tax contributions are treated as employer contributions for purposes of the ACP test.

So, let’s see what happens:

The ADP test still passes easily as there was no change. However, they now fail the ACP test and the Owner 1 will be required to take a return of $22,575 in excess after-tax contributions – that’s not going to be a pleasant conversation for the TPA to have with them.

So, what’s the big deal? I put money in, and I get it back if we fail?

Well, let’s remember the objective here. You were putting money into the after-tax source with the goal of immediately converting it to a Roth either within the plan or via an in-service distribution to a Roth IRA. Well, that conversion/rollover would be ineligible and would need to be disgorged from their account – and you thought the 1st TPA conversation with Owner 1 was going to be rough!

Bottom Line

The Mega Backdoor Roth can and does work. But you need to have ideal demographics and likely a very generous employer contribution to the plan. If so, this can be a great benefit.

The short answer – talk to your TPA or consultant, evaluate the demographics and objectives, and do a preliminary ACP test in advance to see if it will work.

If you’d like to know more, you can reach out to us here. We’d be happy to help answer any questions you may have.

The post Mega Backdoor Roth & After-Tax Contributions in Your 401(k) Plan appeared first on Odyssey Advisors, Inc.

Bottom Line Up Front

• Tight municipal budgets and rising pension costs have led some towns to consider Pension Obligation Bonds (POBs) as a funding strategy.
• POBs can improve a plan’s funded status and offer temporary budget relief if investment returns exceed borrowing costs, but that outcome depends heavily on market performance and timing.
• Significant risks remain: poor investment returns, added debt, and shifting costs to future taxpayers can leave municipalities in a worse financial position than before issuance

Many towns and cities today are operating under increasing fiscal pressure. Rising costs, slow revenue growth, and competing demands on limited resources have made it harder than ever to balance municipal budgets. At the same time, long-term obligations such as pension liabilities continue to grow, placing additional strain on financial stability. In response, some municipalities have turned to Pension Obligation Bonds (POBs) as a strategy to address these challenges.

What is a Pension Obligation Bond?

A Pension Obligation Bond is a taxable bond issued by a municipal entity to help fund the unfunded portion of its pension liability. The municipality issues the bond and invests the proceeds alongside the pension plan’s existing assets, typically in higher-yielding investments.

The goal is to earn a rate of return on those invested proceeds that exceeds the interest rate owed on the bond over its term. If that occurs, the municipality can improve its pension funding status and potentially reduce its long-term costs. However, the strategy also introduces additional financial risk.

The Government Finance Officers Association (GFOA) has cautioned municipalities against using POBs in most circumstances. In its official advisory, the GFOA cites the inherent risks of market volatility, timing uncertainty, and added debt burden. While POBs can appear beneficial on paper, they often increase overall financial risk if investment returns fall short of expectations.

Why Consider Pension Obligation Bonds?

Municipalities typically explore POBs for two primary reasons: budget stabilization and potential financial upside.

1. Budgetary Relief

Many local governments are operating under tight budgets and are forced to prioritize limited resources. Issuing debt to fund part or all of the pension liability can temporarily relieve pressure on annual budgets. This may stabilize required pension contributions and free up funds to support other essential public services.

2. Potential Financial Advantage

In theory, municipalities can borrow at a relatively low, fixed interest rate and invest the proceeds in assets expected to earn a higher return over time. If the pension investments outperform the bond’s interest rate, the municipality may realize a net gain.

However, these benefits depend on favorable market conditions and long-term investment performance. If those assumptions don’t hold, the financial outcome can quickly turn negative, leaving the municipality in a worse position than before the bonds were issued.

The Risks

While POBs can offer short-term relief and potential long-term benefits, they are not a cure-all. These transactions carry several significant risks that municipalities should thoroughly consider before proceeding.

1. Investment Risk

The greatest risk is that investment returns fail to exceed the bond’s interest rate.

For example, if a city issues bonds at a 5% interest rate and expects its pension assets to earn 7%, the 2% spread seems advantageous. But market performance is unpredictable, and a few years of underperformance can quickly erase those gains.

It is also important to remember that POBs are taxable instruments. This means issuers pay taxable market interest rates which increases the hurdle rate for the pension fund’s investment returns to exceed the taxable bond’s interest rate to achieve the desired advantage. Because POB proceeds are typically invested immediately, issuing bonds during an overvalued market can magnify the downside if asset values decline soon after.

2. Timing Risk

Timing is critical as POBs tend to be most effective when interest rates are low and market conditions are favorable. However, predicting either is challenging.

Municipalities are often drawn to POBs after periods of strong market performance, when the potential for future underperformance is higher. Conversely, when interest rates are high, borrowing costs increase and the “spread” between the bond rate and expected investment returns narrows. This can undermine the core financial logic behind the transaction.

3. Credit Rating Risk

Credit rating agencies typically view POBs with caution. While a POB may improve a plan’s funded status on paper, it also adds a fixed debt obligation to the municipality’s balance sheet.

This can be seen as a sign of fiscal stress or an attempt to leverage future resources, which may result in a credit rating downgrade. Such a downgrade increases borrowing costs for future projects, offsetting much of the anticipated savings.

4. Shifting Costs to Future Tax Payers

A key concern from a public policy perspective is intergenerational equity. This means the fair distribution of costs between current and future taxpayers.

Issuing POBs can transfer risk to future residents if investment performance falls short of expectations. While today’s taxpayers may experience short-term relief, future taxpayers could be left paying off the debt for assets that failed to meet return assumptions.

This outcome is particularly troubling when POBs are issued primarily as a short-term budget solution rather than as a part of a comprehensive, disciplined pension funding strategy. In such cases, the municipality is effectively kicking the can down the road and betting that future market conditions will deliver enough return to bail it out.

Conclusion

On the surface, Pension Obligation Bonds can seem like an attractive shortcut to improve pension funding and ease budget pressures. LIke any investment tool, there is a place for them when used appropriately. However, the GFOA generally advises against POBs unless paired with structural reforms and strict funding discipline.

If your municipality is considering a POB, it’s essential to:

• Use realistic actuarial and investment assumptions
• Conduct robust scenario and stress testing
• Commit to long-term funding discipline to avoid repeating past shortfalls

It is also important to consider whether your municipality may require State approval or changes in local ordinances to allow for the issuance of a POB. To improve the odds of success on your POB issuance, it’s recommended that you obtain the required permissions so that you can “strike while the iron is hot” to take advantage of that period of low interest rate or equity market declines.

If you have questions about Pension Obligation Bonds or your community’s retirement benefit liabilities, please reach out to one of our team members. We’re here to help municipalities make informed, sustainable decisions for the future.

The post What is a Pension Obligation Bond? appeared first on Odyssey Advisors, Inc.

Bottom Line Up Front

• IRC Section 415 sets limits on retirement plan benefits and contributions, and exceeding them can trigger significant tax penalties and administrative complications.
• Defined Benefit and Cash Balance plans are especially vulnerable to overfunding, particularly when investment returns or contributions outpace allowable limits.
• Proactive monitoring—across funding, investments, and plan design—is essential to avoid surplus issues, stay compliant, and maintain long-term plan flexibility.

Download a PDF version of this article (Understanding IRC Section 415)

IRC Section 415 governs the maximum benefits and contributions allowed in qualified retirement plans. These rules are designed to prevent disproportionately large tax-advantaged benefits and ensure plans operate within IRS guidelines. While the limits may seem straightforward at first glance, the operational impact, especially for Defined Benefit and Cash Balance Plans, can be significant.

What is IRC Section 415?

IRC Section 415 sets maximum benefit and contribution limits for qualified retirement plans to ensure compliance and prevent excessive tax advantages. The limits differ depending on whether the plan is a Defined Benefit (DB) plan or a Defined Contribution (DC) plan. 

• Defined Benefit (DB) Plans: Annual benefit is capped at $290,000 for 2026 for a life annuity at age 65, adjusted for retirement age, payment form, and service years. 
• Defined Contribution (DC) Plans: Annual additions (employee + employer contributions) are limited to $72,000 for 2026 (excluding catch-up contributions).

Why It Matters

Section 415 isn’t just a technical rule, it directly affects funding strategies, plan design, investments, and tax outcomes. Exceeding the limit can create major issues, including taxes, penalties, and administrative complexity. 

Examples of Key Risks

• Surplus Assets: If plan assets exceed the 415 limit, any excess at termination may face a 50% reversion tax assessed by the Internal Revenue Service (IRS), plus corporate income tax on the remainder — potentially a 90% effective tax rate. 
• Funding risks: Large contributions or high investment returns can push plans beyond allowable limits, requiring extended plan duration to absorb surplus. 
• Investment Strategy: Cash Balance Plans invested aggressively (e.g., 100% equities) often generate returns far above the intended crediting rate, accelerating surplus risk.

Common Challenges for Plan Sponsors

Even well-managed plans face recurring complexities under Section 415, including: 

• Managing contributions to prevent overfunding
  Especially in years with strong investment performance. 
• Handling early retirement factors
  Benefits must be actuarially reduced, and the calculations can be complicated. 
• Accounting for joint & survivor or other optional forms of benefit
  Payment forms must be converted to an actuarial equivalent of a straight life annuity for 415 testing. 
• Monitoring potential legislative changes
  For example, if cost-of-living adjustments (COLA) are frozen due to legislation, current limits could stagnate even while plan liabilities continue to increase. 

Best Practices for Staying Compliant

Plan sponsors can reduce risk by being proactive and building 415 monitoring into annual strategic planning. 

• Monitor Annually
  Compare projected DB benefits or DC contributions against annual 415 limits.
  
• Align Investments
  Investment policies for DB/Cash Balance plans should support—not conflict with—interest crediting assumptions and long-term funding strategies.
  
• Plan for the Long Term
  Consider how contributions, plan amendments, and demographics may impact compliance over time. 

Recommended Actions

1. Annual Compliance Review
   Conduct an annual audit of plan assets, contributions, crediting rates, and projected benefits to identify potential 415 issues early. 
2. Investment Policy Alignment
   Ensure investment strategies match plan objectives and avoid excessive growth that could create surplus. 
3. Contribution Planning
   Coordinate with your actuary to structure employer contributions that meet objectives without pushing the plan toward overfunding. 
4. Scenario Testing
   Model early retirement, optional forms of payment, and alternative plan designs to ensure 415 compliance in all circumstances. 
5. Legislative Monitoring
   Stay current on IRS updates, cost-of-living adjustments, and proposed policy changes that could affect benefit limits.

Bottom Line

IRS Section 415 limits are technical, nuanced, and often misunderstood—but compliance isn’t optional. With the right monitoring and planning, employers can maintain tax-advantaged status, avoid costly penalties, and ensure long-term plan sustainability. 

If you have questions about how Section 415 applies to your retirement plan, your Odyssey consultant is here to help.

The post Understanding IRC Section 415 Limits and Key Issues appeared first on Odyssey Advisors, Inc.

As your business grows, upgrading your retirement plan from a SIMPLE IRA to a 401(k) can be a smart move. To make this change, ensure that all SIMPLE IRA participants receive notification of the termination by the deadline.

Previously, the notification deadline was November 2, as the IRS mandated a 60-day notice. However, with the implementation of SECURE 2.0 rules last year, you now only need to provide a written notice of the SIMPLE plan termination at least 30 days before the effective date.

How to Terminate Your SIMPLE IRA?

To terminate your SIMPLE IRA and upgrade to a 401(k) plan for 2026, you’ll need to follow a couple of steps. Here’s a general guideline on how to go about it:

1. Notify Employees: If you have employees who are participating in the SIMPLE IRA, you must inform them about your decision to terminate the plan. The IRS requires that you provide a 30-day notice before the end of the calendar year, which would be December 2nd, 2025.
2. Provide Notice to Financial Institution: Notify the financial institution that manages your SIMPLE IRA of your intention to terminate the plan at the end of the year. They will guide you through the process of closing the account.

If you’d like a SAMPLE termination notice to send to your employees, we have one available for download here.

Good to note: You do not need to notify the IRS that you’ve terminated your SIMPLE IRA plan.

You can work with your financial professional to determine the appropriate 401(k) Plan design & provider before year-end to maintain continuity without the constraint of an IRS deadline. Be aware, if you’d like it to be a “safe harbor” plan similar to the SIMPLE-IRA, that does have a December 1st notice date to employees.

As always, if you have questions on this or need more, please contact an Odyssey consultant.

The post Want to Upgrade Your SIMPLE IRA to a 401(k) Plan in 2026? The Deadline is Now appeared first on Odyssey Advisors, Inc.

Bottom Line Up Front

• Frequent RMD withdrawals may look smart, but transaction fees can quietly drain thousands from your retirement income
• A $100 fee on monthly withdrawals can eat up more than 16% of annual distributions, undermining the benefits of a steady withdrawal strategy
• Simple fixes like consolidating withdrawals, rolling over to an IRA, or choosing a no-fee custodian can protect more of your money

You planned carefully, saved for years, and finally retired. But what if something as small as a $100 fee could quietly add up to thousands of dollars from your nest egg? For many retirees taking Required Minimum Distributions (RMDs), that’s exactly what may be happening.

RMDs are mandatory withdrawals that the IRS requires once you reach a certain age, designed to ensure the government eventually collects taxes on tax-deferred retirement accounts.

A recent Wall Street Journal article highlighted a new trend: more retirees are taking their RMDs in smaller, regular installments rather than in a lump sum each year. On paper, this approach resembles dollar-cost averaging in reverse, spreading out withdrawals to reduce timing risk.

Here’s the catch: while the strategy looks smart in theory, transaction fees can turn it into a pretty costly mistake if you’re not careful.

The Appeal of Dollar-Cost Averaging in Retirement

At first glance, spreading out your RMDs through smaller, regular withdrawals seems like a safe and disciplined approach. The idea, often called “reverse dollar-cost averaging,” is that by taking steady payments throughout the year, you can reduce the risk of bad timing.

Instead of worrying about pulling a lump sum right before a market downturn, you smooth withdrawals across different points in the market cycle. For many retirees, this method also provides a sense of stability, almost like receiving a paycheck again, which can make day-to-day budgeting easier. On top of that, it removes the stress of trying to guess the “right” moment to take money out, reducing the temptation to make timing mistakes that could hurt long-term returns.

The Cost Nobody Talks About: Transaction Fees

Here’s where things get tricky. Many employer-sponsored retirement plans, particularly 401(k)s, charge a fee each time you take a distribution.

Example:

Imagine a retiree withdrawing $600 every month from their 401(k). If each transaction comes with a $100 fee, that’s 17% gone immediately before investment returns and before taxes.

Compare that with an IRA or brokerage account, where ACH transfers are often free. Suddenly, the “safe” strategy looks expensive.

When the Math Doesn’t Math

Let’s break it down further:

• $100 per withdrawal x 12 months = $1,200 in annual fees
• If your RMD is $7,200 for the year, that’s more than 16% lost to fees
• Over a decade, that’s $12,000 drained from your retirement income

Not only do these recurring fees reduce income, but they can also amplify the sequence of return risk — the danger of selling investments at the wrong time. Paying extra fees accelerates the erosion.

Better Withdrawal Strategies

The good news is that retirees have several ways to minimize or even eliminate transaction fees on their RMDs. One of the most effective approaches is rolling assets from an employer-sponsored plan into an IRA, since many custodians don’t charge for routine distributions. Another option is to rethink the frequency of withdrawals. Instead of taking money out every month and racking up charges, some retirees opt for quarterly or even a single annual distribution. This reduces the number of transactions while still meeting IRS requirements.

It’s also worth comparing custodians, because some providers offer no-fee transfers while others tack on steep charges for each withdrawal. Even if you’re happy with your current setup, reviewing the plan documents and fee schedule can uncover hidden costs you may not have realized you were paying. A little attention to these details can mean thousands of dollars saved over the course of retirement.

Questions Retirees (and Advisors) Should Be Asking

Before setting your RMD schedule, ask:

• Am I required to pay a fee every time I take a distribution?
• Would consolidating withdrawals save me money?
• Is my retirement account the best vehicle for my withdrawal strategy?

A few simple questions can prevent thousands of unnecessary costs.

Final Thoughts

Reverse dollar-cost averaging can be a smart way to manage retirement income, but only if the math works in your favor. Transaction fees are often overlooked, yet they can quietly eat away at your nest egg, turning a sound strategy into an expensive one.

Before settling on a withdrawal plan, retirees and advisors should carefully evaluate the real costs. Sometimes, the smartest move isn’t about timing the market; it’s about avoiding unnecessary fees.

The post The Hidden Costs of RMDs: Why Transaction Fees Matter More Than You Think appeared first on Odyssey Advisors, Inc.

Bottom Line Up Front

• Medicare costs are climbing – Part B premiums are projected to rise over 11%, and Medigap plans could see an 8-12% increase.
• Social Security COLA will be modest – Expect a 2.6% to 2.8% adjustment, adding around $50/month on average, which will be largely offset by increased Medicare premiums.
• High-income retirees may pay more – IRMAA surcharges are expected to rise slightly, so income planning now could help avoid higher costs later.

It’s almost August, which means fall, the holidays, and the new year are just around the corner. Time really does fly. As 2025 winds down, many retirees and soon-to-be retirees are already looking ahead to 2026, especially when it comes to Medicare costs and Social Security benefits.

While official numbers won’t be finalized until later this year, current projections and historical trends give us a pretty good idea of what’s coming.

Here’s a breakdown of what to expect in 2026, and a few planning tips to keep in mind.

Medicare Part B Premiums – 2026 Outlook

The standard Medicare Part B premium is projected to increase from $185.00 in 2025 to approximately $206.00 – a jump of $21.50 or about 11.6%.

For beneficiaries with higher incomes, IRMAA (Income-Related Monthly Adjustment Amount) surcharges are also expected to rise slightly, by an estimated 1.04% on average, according to the latest Medicare Trustees’ Report.

What this means:

• Standard Part B enrollees could pay significantly more in 2026.
• Higher-income individuals may face even greater increases due to rising IRMAA backets.

Medigap (Medicare Supplement) Premium Trends

While 2026 Medigap premiums haven’t been set yet, they typically increase annually in response to changes in Part B premiums, medical inflation, and other cost drivers.

With a projected 11-12% increase in Part B, expect Medigap plans (like Plan G or Plan N) to rise by 8-12% on average. Factors like age, gender, state, and insurer all influence final rates.

Pro tip: If you’ve had the same Medigap policy for several years, it’s worth comparing current rates with other providers or considering a different plan letter. For a look at your local Medigap plan rates, visit Medicare.gov.

Social Security Benefits & COLA – 2026 Projections

In 2025, Social Security recipients received a 2.5% cost-of-living adjustment (COLA), increasing the average monthly benefit to $1,976 for retired workers.

For 2026, most projections place the COLA between 2.6% and 2.8%, depending on inflation trends:

• 2.6% COLA: Benefit increases to ~ $2,027/month
• 2.8% COLA (optimistic): Benefit increases to ~ $2,031/month

That’s roughly a $50/month increase, on average. You can also follow updates from the Senior Citizens League as they track expected COLA changes.

But here’s the catch:

With Part B premiums also rising, many retirees may see little or no net increase in their Social Security check after deductions. In some cases, the higher premiums could completely offset the COLA increase.

A Decade of Medigap Rate Increases (2015 – 2025)

Looking back can help us see where we’re headed. Here’s how monthly Medigap premiums for Plan G (for a 65-year-old male) have trended:

• 2015: $120 – $175
• 2020: $160 – $220
• 2025: $200 – $260

Plans F and G, the most popular options, have historically increased 5-10% per year, and the graphic (shown above) confirms a steady upward trend, particularly after 2020.

2026 at a Glance: Key Numbers

Key Takeaways for 2026

In 2026, Medicare Part B premiums are expected to rise sharply (over 11%), marking one of the most significant annual increases in recent years. Medigap plan premiums are likely to follow, with projected increases in the 8-12% range depending on plan type and location. Meanwhile, the Social Security cost-of-living adjustment (COLA) is estimated to come in around 2.6% – 2.8%, offering retirees a modest monthly benefit increase of about $50.

Unfortunately, that boost may be entirely offset by the higher Medicare premiums, leaving many beneficiaries with little to no net gain. For higher-income retirees, income-related surcharges (IRMAA) will also tick upward, making careful income planning all the more important.

What You Can Do Now

• Review your Medigap coverage. Shop around if your insurer raises rates significantly.
• Understand IRMAA thresholds. Remember, IRMAA surcharges are based on your modified adjusted gross income (MAGI) from two years prior, meaning 2024 tax returns will impact your 2026 Medicare premiums.
• Track COLA updates. The official 2026 COLA announcement comes in October 2025; stay tuned.

If you’d like approximate state-specific costs or comparisons between Medigap plans (e.g., Plan G vs. Plan N), you can reach out to us. We’re happy to help you break it all down.

The post What to Expect for Medicare and Social Security in 2026 appeared first on Odyssey Advisors, Inc.

Bottom Line Up Front

• Cash Balance plans enable high-income self-employed individuals, particularly those over 40, to supercharge their retirement savings beyond what traditional plans allow.
• Contributions are fully tax-deductible, creating immediate tax savings.
• While powerful, these plans come with strict funding obligations, administrative costs, and complex compliance rules, making them ideal for those with stable income and a long-term mindset.

When you’re self-employed, you’re in charge of everything – from client work to finances to your future retirement. And unlike traditional employees, you don’t have a built-in retirement plan waiting for you. That makes it even more important to find tax-smart, high-impact savings tools. One option that’s gaining traction among high-earning business owners? The Cash Balance Plan.

So, What Is a Cash Balance Plan?

Think of it as 401(k)’s sophisticated cousin. It looks like a retirement account with a balance that grows over time, but it’s actually a type of defined benefit pension plan with a modern twist.

Here’s how it works:

• You (as the employer) contribute a pay credit each year. This can be a percentage of pay or a fixed dollar amount (e.g., 25% pay for owners, 3% for others).
• Then, the account earns an interest credit, a guaranteed rate defined in your plan document. It might be a fixed rate or tied to something like U.S. Treasury yields.
• While it feels like a personal retirement account, it’s actually a company-funded benefit governed by specific pension rules.

Bottom line: You get the structure of a pension with the transparency of an account-based plan.

Why Cash Balance Plans Work So Well for the Self-Employed

1. Higher Contribution Limits – Especially As You Age

If you’re over 40 and looking to make up for lost time, a Cash Balance Plan (CB Plan) offers much higher annual contribution limits than IRAs or Solo 401(k)s. Contributions are calculated using actuarial methods and increase as you age.

Here’s what that might look like:

(Actual limits vary based on income and plan design)

This makes it a standout option for late starters or those finally hitting their financial stride.

2. Major Tax Deduction Power

Contributions to a Cash Balance Plan are fully tax-deductible as a business expense. For self-employed professionals in higher tax brackets, such as doctors, attorneys, business owners, etc., this can lead to substantial savings. Since the contributions reduce your adjusted gross income (AGI), they may also improve eligibility for other tax benefits and deductions. A CB Plan not only helps build retirement wealth but also serves as a highly effective tax planning tool, lowering your immediate tax liability while increasing long-term savings.

3. Catch-Up Power for Late Savings

Many entrepreneurs spend their early years reinvesting profits or weathering financial ups and downs. Saving for retirement typically takes a back seat. As a result, many find themselves in their 40s or 50s with a strong income but a sizable gap in their retirement planning. If you’re in a more stable position but feel behind on your retirement planning, a CB plan can help you catch up fast, especially if you’re aiming to retire in the next 10-20 years.

4. Can Be Paired with a Solo 401(k)

One of the best-kept secrets? You don’t have to choose between plans.

One highly effective strategy used to help self-employed individuals save for retirement is pairing a CB plan with a Solo 401(k) or profit-sharing plan. This approach allows you to maximize your retirement savings across two different vehicles. Together, they can push your total annual retirement contributions well over $300k – $400k, depending on your age and income.

Heads up: When using both plans together, the IRS combined plan limit comes into play. This rule typically caps employer contributions to defined contribution plans to 6% of pay when paired with a Cash Balance plan. So while it may slightly reduce what you can contribute to your 401(k), you’ll still unlock a much larger deductible contribution through the CB plan.

Not only does this dramatically increase your retirement nest egg, but it also provides substantial tax relief in the current year. That’s a powerful one-two punch: accelerated savings and reduced tax liability.

What You Should Know Before You Dive In

These plans aren’t for everyone. They work best for those who have:

• Consistent income
• A long-term view
• The willingness to follow the rules (or have someone help you do so)

These are the things you should consider:

Ongoing Funding Requirements

Cash Balance plans come with strict ongoing funding requirements that distinguish them from more flexible retirement options, such as 401(k)s. Since CB plans are a type of Defined Benefit plan, you’re obligated to contribute an amount each year based on actuarial calculations designed to meet the promised benefit at retirement. 

Contributions must be made consistently to stay compliant and cannot be skipped without potentially facing IRS penalties or plan disqualification. Annual funding must meet minimum thresholds, and underfunding in one year may require catch-up contributions in future years.

More Administrative Complexity (But It’s Manageable) 

Yes, these plans are more complex than an IRA. You’ll need: 

• An actuary to calculate annual contributions 
• A third-party administrator (TPA) for compliance testing and filings
• Annual IRS filings like Form 5500 

But here’s the thing: Most high-income business owners feel the tax and savings benefits far outweigh the admin fees, especially with the right team in your corner. 

Lots of Rules = A Need for Pros

Since Cash Balance plans are a type of Defined Benefit pension plan, they are governed by a web of IRS and Department of Labor regulations. They must comply with the rules that apply to DB plans, such as nondiscrimination testing, minimum funding standards, and benefit accrual limits. Trying to DIY this would be like doing your own root canal. 

Additionally, these plans need to be formally documented and amended as needed to reflect regulatory updates. An annual Form 5500 filing will also be required. CB plans also have strict rules regarding how and when benefits can be distributed, including required minimum distributions and vesting schedules.  

That’s why most self-employed folks work with retirement plan experts (like us) who specialize in small business and self-employed solutions.

Is a Cash Balance Plan Right for You?

For the right self-employed, high-earning business owner, a Cash Balance Plan could be the most powerful retirement tool you haven’t considered yet. While it’s not a fit for every business owner, those with the income and stability to fund it can be a total game changer. 

Let’s Talk Strategy

At Odyssey Advisors, we’ve helped countless self-employed professionals design and manage Cash Balance Plans that fit their goals and cash flow. If you’re curious about what your retirement picture could look like, let’s explore it together. 

The post Are Cash Balance Plans a Good Option for the Self-Employed? appeared first on Odyssey Advisors, Inc.

Bottom Line Up Front

• Contributing too quickly to your 401(k) or changing your contribution rate during the year could cause you to miss out on employer matching dollars if your company matches per paycheck.
• Ask your employer if they offer a year-end “true-up” or pace your contributions.
• Staying aware of plan rules, raises, and contribution limits ensures you don’t leave free retirement money on the table.

When it comes to saving for retirement, a 401(k) employer match might be one of the easiest wins—free money just for contributing to your retirement plan? Yes, please. But what if we told you that you could be accidentally leaving some of it on the table?

Let’s break down what’s really going on with employer matches and how to make sure you’re not unknowingly leaving money on the table.

First, What Is a 401(k) Match?

A 401(k) match is one of the most valuable benefits an employer can offer. Essentially, it’s when your company contributes to your retirement savings based on how much you contribute. For example, your employer might match 25% of the first 6% of your salary that you contribute.

That means if you earn $80,000 a year and contribute 6% of your salary ($4,800), your employer would contribute an additional 25% of that amount — $1,200. That’s an immediate 25% return on your contribution.

So why would anyone turn that down? They probably don’t mean to, but it happens more often than you think.

Learn more: Matching Contribution: What It Is, How It Works, FAQs (Investopedia)

The Hidden Pitfall of Front-Loading Contributions

Some employees, especially high earners or young professionals living at home with low expenses, try to ‘front-load’ their 401(k) contributions. The thought is: contribute as much as possible early in the year, then take a break once they’ve hit the annual limit.

While that strategy can be efficient in some ways, it may backfire when it comes to employer matching.

Here’s why: many employers tie their matching contributions to each paycheck. If you stop contributing mid-year, after reaching the IRS annual limit, your employer may also stop matching. You might have maxed out your personal contribution, but if your employer only matches based on per-paycheck contributions, you could miss out on months of matching dollars.

Real Talk: That’s Money You Could’ve Had

Let’s say you hit the IRS contribution limit by the end of July. Great! But if your employer doesn’t “true-up” your contributions at the end of the year (more on that below), you could be missing five full months of matching funds.

How to Make Sure You’re Getting Every Dollar You Deserve

Avoiding this mistake isn’t complicated, it just takes a little planning. Here’s how to do it:

1. Find out if your employer offers a year-end “true-up”
   
   Some employers run a true-up process at the end of the year. That means they review your total contributions across the year and make up any matching shortfalls, even if you stopped contributing mid-year. If your company does this, great! You’re likely covered.
   
   Action: Contact HR or check your Summary Plan Description (SPD) to see if a true-up is part of your plan design.
   
2. Pace yourself
   
   If your employer doesn’t offer a true-up, you’ll want to time your contributions so they’re spread out over the year. That way, your contribution gets matched with every paycheck.
   
   Pro Tip: Use your payroll calendar to calculate how much to contribute per pay period to hit the annual limit by your final paycheck.
   
3. Monitor changes throughout the year
   
   Raises, bonuses, and other compensation shifts can throw off your contribution pacing. If you receive a bump in pay or a large bonus that’s eligible for 401(k) contributions, reassess your per-paycheck contributions to avoid maxing out to early.
   
4. High Earners: Know Your Options
   
   Some companies offer non-qualified plans to supplement their standard 401(k) offerings, typically for certain employees who exceed plan limits or hold specific roles. These plans allow for additional retirement savings opportunities, though they often come with different rules and considerations.
   
   If you’re in a higher income bracket or leadership position, it’s worth asking whether your company offers a non-qualified plans as part of your overall package.

The Bottom Line

An employer match is essentially free money for your future. But like any benefit, it’s only as valuable as your ability to access it.

By pacing your contributions, understanding your plan’s match structure, and staying proactive throughout the year, you can avoid one of the most common 401(k) mistakes and maximize your retirement savings.

The post Are You Missing Out on Your 401(k) Match Without Realizing It? appeared first on Odyssey Advisors, Inc.