Video Q&A: Retirement Planning for Fractionals

We recently hosted a Live Q&A with Jules Buxbaum (founder, 2Pi Financial) and Taylor Crane (founder, Fractional Jobs) focused on how fractional professionals should approach retirement planning.

Jules brought deep expertise from his background as a Finance PhD, former economist at the Federal Reserve, and a 20 year Wall St veteran. Taylor provided practical perspectives grounded in his experience working in the fractional world.

In this rapid-fire, 25-minute session, we covered topics like:

• The retirement accounts specifically advantageous for fractional business owners
• Strategies to manage retirement contributions effectively despite fluctuating income
• Assessing appropriate risk tolerance in a career path known for its inherent uncertainty

If you missed the live event, we highly recommend watching the full recording below.

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Watch the Live Q&A >>>>

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Or, you can continue below to read the full transcript of the our Q&A session.

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Q1: What are all my different options for putting my money away? The IRAs, the 401Ks, etc.

Jules: Everything falls into one of two categories: tax-advantaged accounts, which include IRAs (traditional IRA, Roth IRA, SEP-IRA) and various forms of 401(k)s. There's the Solo 401(k)—which I think we'll discuss extensively today because it's especially relevant for fractionals—as well as the Starter 401(k), Safe Harbor 401(k), and full 401(k). There are many options within the tax-advantaged category.

Then there's the non-tax-advantaged category, primarily regular brokerage accounts at places like Schwab or Fidelity, where you can buy and sell stocks or other investments. I'd also include bank accounts in this category, such as standard savings accounts and CDs. Although non-tax-advantaged accounts aren't typically emphasized in retirement planning discussions, I think they're particularly important for fractionals.

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Q2: What accounts should Fractionals consider utilising?

Jules: Let me just start by saying, you know, there are a lot of alternatives, a lot of choices, but it's really pretty easy to narrow it down by answering just a few simple questions, one of which is, how much do you want to save? If your saving target is $7,000 a year or $8,000 if you're 50 or older, Plain Vanilla IRA is really perfect. It's simple, it's easy, and it will satisfy what you need. The traditional Ira is before tax money. So when you contribute to a traditional, you can actually reduce your taxes. The Roth is after tax money, so it grows tax free. You don't pay money when you take it out. I really like Roth. I like trying to get as much money into a Roth as possible.

The brokerage accounts come into play, I think, for Fractionals, because with the highly variable income, hesitancy to lock money away, there are restrictions on getting money out of tax advantage accounts. So the brokerage account really, I think, is a vehicle to save, you know, kind of with comfort, and it's a theme that I think will come up a few times today, and that is, I think it's way more important to save than to save on taxes, and I think tail wags the dog. Taxes are important, you should try to minimize them, but you know the brokerage account is to prevent you from letting the fear of locking money up prevent you from saving.

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Q3: What is the Solo 401K & SEP IRA?

Jules: Both the Solo 401(k) and the SEP IRA are designed for business owners with no or few employees. On the surface, they're quite different. With a SEP IRA, only the employer contributes funds, while the Solo 401(k) allows contributions from both employer and employee. For a sole business owner, though, it doesn't really matter, because the employer and employee are essentially the same person. So when you look closer, these two plans serve very similar purposes.

The Solo 401(k) tends to be misunderstood. It's really just a regular 401(k) but tailored specifically for entrepreneurs and possibly their spouses, eliminating many of the complexities found in typical 401(k) plans. It also provides more flexibility—for example, it can be set up as either a Roth or a traditional account, whereas a SEP IRA cannot be a Roth. So there are some important differences, but ultimately, they're both well-suited for solo entrepreneurs.

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Q4: Is the Solo 401K & SEP IRA a no-brainer?

Jules: The short answer is yes—it's a no-brainer. These accounts don't cost anything to open, and they don't have minimum requirements. Aside from your time, there's essentially no cost involved in setting them up. Plus, there's flexibility in moving and allocating your money. So, I genuinely believe setting one up is an easy decision.

The Solo 401(k) involves slightly more paperwork and effort, but that's the trade-off for its increased flexibility. The SEP IRA, on the other hand, is simpler. But yes, I think everyone should have one or the other.

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Q5:  In my case, I do a fancy trick called the Mega backdoor Roth conversion.  My understanding is that I can take all the money I put into a pre-tax Solo 401K and move it my Roth IRA, and be able to contribute way more than the $7,000 maximum to the Roth IRA. So like, I'm getting a lot of more money into the Roth. So tell me I'll stop there like. So what do you think about this personal strategy?

Jules: I like that strategy a lot—it makes plenty of sense. It’s essentially a two-step process: first contributing to a traditional account, then converting to a Roth, with the goal of putting more money into a Roth than you normally could. The traditional Roth IRA has a $7,000 annual maximum (or $8,000 if you're 50 or older), and it also has income restrictions. For example, if your income exceeds around $165,000, you can't contribute directly to a Roth.

The Roth IRA offers significant benefits—your money grows tax-free, and you don't pay taxes upon withdrawal—which is why there are restrictions on contributions. The "mega backdoor" is essentially a workaround: it sounds complicated, but it's simply moving money from a traditional account to a Roth. When you make this conversion, you pay taxes, just like any withdrawal from a traditional account. But doing so completely eliminates uncertainty about future taxes. This benefit of certainty is often overlooked. With a traditional IRA, whether you ultimately come out ahead depends on your tax rate when you contribute compared to when you withdraw. The Roth removes that uncertainty entirely, and that's a significant advantage.

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Q6:  How much to invest given Fractional income can be variable?

Jules: I think most people already know this—but don’t always implement it—that saving for retirement involves balancing your present needs with your future goals. I usually recommend starting with what you want or expect to spend in retirement, identifying your needs and desires, then working backwards to figure out how much you need to save. Once you've done that, you should evaluate whether your savings goal is realistic. Can you comfortably save that much, or can you save even more? Or perhaps it's too challenging, and you need to reduce your retirement spending expectations and recalibrate your savings target accordingly. It's an iterative process: figure out your desired spending, calculate the required savings, then adjust back and forth until you find a comfortable balance.

One particularly valuable feature of most retirement plans is that you typically don't have to deposit your contribution until tax filing time—usually April 15th, or later if you get an extension. This lets you review your full year's income before committing money to a tax-advantaged account.

What I strongly recommend is regularly contributing throughout the year into a standard brokerage account. This way, at year-end, you'll have already saved the money needed for your IRA or 401(k) contribution without scrambling at the last minute. And if the year didn't turn out as well as you'd hoped—or even if things were fine but you're hesitant about locking the funds away—you can simply leave the money in your brokerage account. Treat the brokerage account like your retirement fund throughout the year, investing accordingly, and then transfer it into your traditional or Roth IRA or 401(k) once you’re confident at year-end. It's a strategy I highly recommend.

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Q7:  What about Fractional risk tolerance compared to having a full-time job?

Jules: I typically advise that your risk tolerance shouldn’t change simply because you've moved from a full-time role into fractional work. The reason is that it's easy to confuse two separate issues—one being your emergency fund, which is what you'll rely on if your job or income dries up. Fractionals, in particular, need a substantial emergency fund, especially if their income is highly variable. This is the money you'll use to pay rent and cover expenses if your earnings temporarily stop.

However, I wouldn't want to put extra pressure on your retirement portfolio, as that's meant to support you in 20, 30, or more years down the road. Retirement savings should be viewed over decades, and you shouldn't alter your retirement portfolio’s risk profile to address short-term needs like next month's rent. It's essential to maintain the appropriate level of risk in your retirement investments, specifically tailored to long-term retirement goals.

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Q8:  If I'm brand new to investing, just tell me where I should put my money!

Jules: The simplest advice I have is to put your money into the S&P 500—and I'll explain why. There are several reasons I like index funds, with the S&P 500 being the prime example. Briefly, the S&P 500 is composed of 500 stocks selected by Standard & Poor’s to represent the overall U.S. economy. It includes companies ranging from auto manufacturers and home builders to businesses that provide everyday services like lawn care or window repairs. By investing in the S&P 500, you're effectively investing in a broad cross-section of the U.S. economy. Plus, many of these companies have significant international operations, giving you exposure beyond the domestic market.

Now, I don't believe the S&P 500 is the ultimate solution for investing, but it's an excellent first step. If that’s the only investment you ever make, you're still in pretty good shape. There are many convenient ways to invest in the S&P 500—mutual funds, ETFs, and so forth—and we can discuss those in more detail. These investments provide immediate diversification, and again, if that's all you do, it's quite effective.

Another key advantage of these index investments is their low fees. You're not paying someone to guess which stocks might outperform—you're simply investing in the market as a whole. Because of this, index funds typically have very low costs. Fees are one area you directly control: if you save 1% on fees, your portfolio grows an extra 1% that year, guaranteed.

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Q9:  So whats the next step to be more active with my retirement investing?

Jules: You should aim to increase your diversification. Earlier, I mentioned that the S&P 500 is quite diversified—and it is—but there’s even more you can do. For example, there are international stocks, emerging markets, and U.S. small-cap stocks. Various indices and investment vehicles let you broaden your exposure beyond just the S&P 500.

Another important step is managing risk as you approach retirement. I think this concept is often misunderstood. As you get closer to retirement, your future earnings naturally decrease relative to your current wealth, since you're converting earnings into accumulated savings. Given this, it becomes logical to gradually reduce the risk level in your portfolio.

I spent a lot of time building a tool to help with exactly these questions—it's called 2Pi Financial. People often ask me, "How should I diversify?" or "How do I reduce risk as retirement approaches?" I built this tool precisely to answer those questions. It's available for free on my website, so it's definitely worth checking out. We don't track users or collect personal data, so you remain completely anonymous. If you're interested in specific recommendations on diversification and risk management as you get closer to retirement, I'd encourage you to give the tool a try.

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Q10: Of the retirement accounts we talked about like the Solo 401Ks, IRAs, and SEP IRAS. Are any of them restricted if your LLC is taxed as an S. Corp? Or  if you have multiple owners of an Llc?

Jules: Those programs aren't dependent on how your company is structured. Whether you're an LLC or a sole proprietorship shouldn't affect your decision. The real keys are: Do you have employees, and how much do you want to save? The company structure, like an LLC, doesn't significantly matter. Even if you have a full-time W-2 job and run an LLC on the side, you can still use these retirement accounts.

However, one important detail to be aware of is that there are overall limits on how much you can contribute to tax-advantaged accounts each year. If you're employed elsewhere, your primary employer won't monitor contributions made through your side business. It's up to you to track these total limits carefully.

Interestingly, there's plenty of guidance available about how to correct mistakes if you accidentally exceed contribution limits. But obviously, it’s best to avoid errors in the first place. Keep a close eye on your overall annual contribution limits to prevent issues down the road.