My 401(k) Dwarfs My Brokerage Account: With 7 Years Until Retirement, How Should I Invest Now?

Entrepreneurs and small business owners sit at the heart of a healthy, capitalism-driven economy. Small businesses represent 43.5% of U.S. GDP, and from January 1995 through December 2024 they accounted for 61% of net new job creation, according to the SBA’s February 2026 FAQ. The same SBA data counts 36.2 million small businesses currently operating in the United States, which is 99.9% of all businesses in the country.

Because tax law has long been shaped to encourage entrepreneurship, small business owners have retirement-planning tools available to them that traditional salaried employees at larger corporations simply cannot access. Understanding the full scope of those tools is critical for owners thinking about an early exit, especially when pre-tax retirement accounts have grown far larger than post-tax holdings.

A Business Owner’s 401(k) and Non-Retirement Investment Imbalance

A Reddit poster in his 40s turned to the fatFIRE community for advice on a genuinely complex situation. His scenario broke down like this:

• Both he and his wife held large 401(k) balances relative to their taxable brokerage accounts.
• Within five to seven years, he expected their combined 401(k)s to surpass $5 million.
• Over that same period, he projected their non-retirement brokerage accounts would reach $3 to $4 million.
• The couple owns a business they plan to sell for $5 to $10 million in five to seven years, though that outcome is not guaranteed.
• His core question: given plans to retire near age 50, does it still make sense to keep maxing out their 401(k)s when the pre-tax accounts already so heavily outweigh their post-tax holdings?

The question carries real weight in 2026. The IRS raised the employee 401(k) deferral limit to $24,500 (up from $23,500 in 2025), with a combined employee-plus-employer ceiling of $72,000. Workers in their 50s can add an $8,000 catch-up contribution for a personal total of $32,500, while those aged 60 to 63 qualify for a SECURE 2.0 super catch-up of $11,250, pushing their personal ceiling to $35,750. At those figures, a high-earning business-owner couple can shelter a substantial amount each year, which makes the decision to slow or stop contributions one worth examining carefully.

Small Business Retirement Account Strategies

The framing of the Reddit poster’s question suggests he is thinking about his 401(k) strictly as an employee benefit, rather than as one piece of a broader business-owner tax toolkit. Several angles deserve a closer look before any decision is made to slow or stop contributions.

Consider the corporate deduction angle first. The IRS allows small business owners to deduct 401(k) matching contributions from gross business revenues, which directly lowers the company’s net taxable income. That deduction covers matching funds for any employees and for the owners themselves. Because the poster and his wife presumably draw the largest salaries in their company, they enjoy a meaningful annual advantage: personal pre-tax salary deferrals plus employer matching contributions both flow into their retirement accounts before any tax is applied.

Small business owners can also offset taxable income through standard operating deductions, including transportation, business meals, home-office expenses, and equipment costs. These deductions continue reducing the couple’s overall tax burden for as long as the business operates, making the environment for continued 401(k) contributions more favorable than a surface-level look at account balances might suggest.

A post-sale side venture structured as a small business can extend many of those same tax advantages into retirement. If the couple establishes a venture built around a skill or hobby before selling their main company, it can generate deductible business expenses under the same IRS rules. The lower personal income bracket that typically follows early retirement would also make pre-tax 401(k) withdrawals less costly over time. Under IRS guidelines, a business generally needs to show a profit in at least two out of five consecutive years to be treated as a legitimate for-profit enterprise rather than a hobby, so the setup requires advance planning but is achievable with a well-structured venture.

A Roth conversion ladder is worth starting sooner rather than later. The couple can begin converting portions of their pre-tax 401(k) or traditional IRA balances to Roth each year while still running the business. Each converted amount then becomes eligible for tax-free withdrawal after a five-year seasoning period, measured from the date of that specific conversion. Because multiple conversions can be staggered year by year, the ladder can supply tax-free income on a rolling basis once retirement begins. One additional factor worth tracking: SECURE 2.0 raised the age for required minimum distributions to 73 for those born between 1951 and 1959, with a further increase to 75 taking effect in 2033 for those born in 1960 or later. That extended runway lets the pre-tax balances compound longer before forced drawdowns begin, which makes a well-timed Roth ladder an even more valuable planning tool.

Finally, there is the 72(t) Substantially Equal Periodic Payments option, commonly called SEPP. The rule allows penalty-free early withdrawals from a retirement account when distributions follow a schedule of substantially equal periodic payments. Those payments must continue for at least five years or until the account holder reaches age 59 and a half, whichever period is longer, and must follow precise IRS rules to remain free of the 10% early-withdrawal penalty. There is no minimum starting age, which makes the strategy available to someone retiring at 50.

IRS Notice 2022-6 recognizes exactly three calculation methods for a SEPP plan: the required minimum distribution (RMD) method, the fixed amortization method, and the fixed annuitization method. The RMD method recalculates the payment each year based on account balance and life expectancy, producing a variable and generally smaller distribution. The two fixed methods set a single level payment that repeats annually and is typically larger. For those fixed methods, the interest rate is capped at the greater of 5% or 120% of the federal mid-term rate, a structure that effectively guarantees a 5% minimum ceiling. That floor matters because it ensures the annual payout stays meaningful even when prevailing interest rates are well below 5%. Regular income taxes still apply to each withdrawal, since the SEPP strategy eliminates the 10% early penalty but does not create a tax-free distribution.

One often-overlooked feature of SEPP is that the IRS permits a single one-time method switch during the payment period: a participant may move from the fixed amortization or fixed annuitization method to the RMD method, but not in the opposite direction. This allows someone who began with a large fixed payment to reduce annual withdrawals if account performance deteriorates, without triggering retroactive penalties. Because locking in a SEPP schedule is otherwise effectively irreversible, and because modifying the plan outside of this one permitted switch triggers back taxes and penalties on every prior distribution, professional tax guidance is strongly recommended before committing to any SEPP plan.

Taken together, these strategies suggest that abandoning 401(k) contributions is not automatically the right move. The corporate deduction benefit, the Roth conversion ladder, and the SEPP option all become more valuable as the pre-tax balance grows, provided the couple plans carefully for how and when they will draw those funds down. The goal is to ensure every dollar flowing into a tax-deferred account has a clear exit plan attached to it.

This article is intended solely for informational purposes. A retirement financial professional should be consulted for more detailed and current advice.

Editor’s note: This pass adds 2026 catch-up contribution limits ($8,000 for ages 50 to 59 and 64 and older; $11,250 for ages 60 to 63 under SECURE 2.0), clarifies that the 5% SEPP interest rate floor functions as a minimum ceiling guaranteeing meaningful payouts even in low-rate environments, and adds the one-time IRS-permitted method switch from a fixed SEPP calculation to the RMD method.

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