Understanding Retirement Plans for New Advisors

By Ann Slotwinski, Executive Director, The Asteri Collective

Nobody hands new advisors a map for this part of the job. You get licensed, you get a book of business, and at some point a client asks something like “can I set up a 401(k) just for me?” and you realize the honest answer requires knowing about eligibility rules, testing, fiduciary categories, and plan types that nobody walked you through in a straight line.

That’s the gap this piece is for. If you’re a solo advisor or working in a small shop, building fluency in retirement plan design is one of the fastest ways to become indispensable to your clients, especially the business owners among them. This won’t make you a plan designer. It’ll make you conversant enough to ask the right questions, spot the right opportunities, and know exactly when to bring in a specialist.

“Can I Set Up a 401(k) for Just Me?”

Yes. This is called a one-participant, or “solo,” 401(k), and it’s built for a business owner with no employees other than a spouse. As the owner, you wear two hats: employee and employer.

As the employee, you can defer up to the annual elective deferral limit, which is $24,500 for 2026 (plus a $8,000 catch-up if you’re 50 or older, or an $11,250 “super catch-up” if you’re between 60 and 63). As the employer, the business can also make a profit sharing contribution. Combined, employee and employer contributions can’t exceed the annual 415(c) limit, which is $72,000 for 2026.

For a profitable solo business owner, that’s a serious amount of tax-advantaged savings, and it’s often the first real planning conversation a new advisor gets to have with a client. It’s a good one to get comfortable with early.

“What About My Wife, Who Works in the Business?”

If a spouse is legitimately employed in the business, meaning they perform real work and receive real compensation for it, they can participate too. A plan covering only the owner and a spouse still generally qualifies as a one-participant plan, which keeps the administrative lift light while doubling the household’s contribution capacity. Two people, each with their own $24,500 deferral and profit sharing potential, is a meaningfully different conversation than one.

The key word is “legitimately.” The compensation needs to reflect actual services performed. This isn’t a loophole to route money through a spouse with no real role in the business, and testing rules exist specifically to catch that kind of thing.

“Can We Add Our Kids?”

This is where new advisors need to slow down, because the answer is “it depends,” and the consequences of getting it wrong are more expensive than the consequences of asking.

A child can be added to the plan if they’re a genuine employee doing real work for reasonable pay. Once a business has more than the owner and a spouse participating, it’s no longer a one-participant plan, and it becomes subject to broader nondiscrimination testing, meaning the plan has to be structured fairly across everyone eligible, not just the family members the owner wants to benefit.

Here’s the part worth walking a client through carefully: adding an 18-year-old changes the testing pool, and depending on plan design, it can also change how favorably the plan tests for the owner. But it also does something worth putting real numbers behind. A contribution made for an 18-year-old has 40-plus years to compound before retirement. Even a modest annual contribution, invested consistently over that stretch, can grow into a genuinely significant sum, simply because time is doing most of the work. That’s a compelling story for a client to hear, and it’s also exactly the kind of testing question where a new advisor should stop, run the scenario by an RPC, and come back to the client with real numbers instead of a guess.

“Can I Start a Cash Balance Plan for Me and My Partners?”

Also yes, and this is where things get more technical, so it’s worth understanding the shape of it even if you’re not the one designing it.

A Cash Balance plan can absolutely be structured for two, three, or more partners in a business. The core parameters an advisor should have in mind when this comes up:

Consistent profitability. Cash Balance plans are meant to be funded on an ongoing basis, generally for several years, so the business needs stable enough income to support that commitment.

Age and compensation of each partner. Contribution amounts are age-weighted, so a group of partners at different ages and income levels will each have different maximums, and the plan design needs to account for that spread.

Coverage of staff, not just partners. If the business has employees beyond the partners, the plan generally needs to provide them a benefit too, which affects overall plan cost and design.

Actuarial involvement. Unlike a straightforward 401(k), a Cash Balance plan requires an actuary to certify the plan’s funding each year. This isn’t something a new advisor is expected to calculate. It’s something you flag, then hand to a specialist.

The advisor’s job here is to recognize the setup (multiple partners, strong consistent profits, a desire to defer meaningfully more than a 401(k) allows) and get an RPC involved to build the actual design.

Fiduciary Responsibilities, in Plain Terms

New advisors hear “3(16),” “3(21),” and “3(38)” thrown around and often nod along without a clear picture of what each one actually means. Here’s the short version:

3(16) Administrative Fiduciary. Responsible for the day-to-day administrative functions of the plan, things like filing the Form 5500, sending required notices, and processing distributions. This role carries liability for getting the operational side right.

3(21) Co-Fiduciary Advisor. Provides investment recommendations but the plan sponsor retains final decision-making authority. The advisor shares fiduciary responsibility for the advice given, but the client is still the one making the call.

3(38) Investment Manager. Takes on full discretionary authority and liability for selecting and monitoring plan investments. The plan sponsor hands over that responsibility entirely.

Knowing which role you’re playing, and which roles other parties (the RPC, the recordkeeper, the client themselves) are playing, matters. It’s the difference between a client understanding their actual liability exposure and a client assuming everyone else is handling it, which is exactly how gaps happen.

Plan Design Types Worth Knowing

Safe Harbor 401(k). A plan design where the employer commits to a specified match or nonelective contribution in exchange for automatically passing certain nondiscrimination tests (ADP/ACP). This is popular with small businesses because it removes a layer of testing uncertainty and lets owners and highly compensated employees defer the maximum without worrying about testing failures forcing refunds.

Combo Plans. A 401(k) plan paired with a Cash Balance plan, tested together. This is one of the more powerful setups for a profitable business owner who wants to defer well beyond what either plan allows on its own, and it’s a common next step for a client who’s outgrown a standalone 401(k).

Neither of these needs to be something you design yourself. They need to be something you recognize as a fit and bring to the table.

Which Businesses Actually Need a Retirement Plan?

More of them than most new advisors realize, and the answer increasingly isn’t optional.

<cite index=”16-1″>CalSavers is California’s retirement savings program, created by legislation requiring California employers that don’t sponsor a retirement plan to participate</cite>. As of <cite index=”15-1″>January 1, 2026, every California employer with at least one W-2 employee is legally required to either offer a qualified retirement plan or enroll in CalSavers</cite>, closing out a phased rollout that started with the largest employers years ago and has steadily expanded down to businesses with a single employee.

California tends to be a leading indicator here. State-mandated retirement programs have been spreading across the country, and California’s approach, expand the mandate until essentially every employer is covered, has historically been a preview of where federal and other state policy eventually lands. A new advisor working with small business clients, in California or anywhere else, should treat “does my client need a retirement plan” as a compliance question now, not just a planning nicety.

There’s also a retention angle worth raising with clients directly. In a tight labor market, a retirement plan isn’t just a compliance checkbox, it’s a recruiting tool. Employees increasingly expect it, and a business without one is competing for talent with one hand tied behind its back.

Where the Asteri Collective Fits

You don’t need to hold all of this in your head at once, and you’re not supposed to. The Asteri Collective is a nationwide network of RPCs (Retirement Plan Consultants, formerly known as TPAs) who exist specifically to take the complexity off an advisor’s plate. Plan design, testing, actuarial work, fiduciary structuring, the parts of this business that require deep technical specialization, that’s what an Asteri Collective member handles.

What that means for you as a new advisor: you get to focus on what you do best, building the client relationship, understanding their goals, and guiding them through decades of financial planning, while a team of some of the most experienced Retirement Plan Consultants in the country handles the technical execution behind the scenes. Your client sees an advisor who has all the answers. What they don’t see is the bench of specialists making sure every answer is right.

That’s the whole model. You look like the rockstar. We’re the team behind you making sure you actually are one.