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For business owners, retirement planning can be complex and daunting.
There are many factors to consider such as how and when to diversify outside your business, when to retire, whether to sell your business, and what type of retirement vehicles are best for you. However, with careful planning and expert help, you can develop a retirement plan that suits your needs and gives you the income for lifelong financial independence.
For many small business owners, the concept of financial independence can feel foreign, as they have dedicated themselves to their business and have understood that if they're not taking the risk of owning a business, they may not be bringing in income. But with proper planning, abundance both during and after your business ownership can be very attainable.
What does retirement look like for small business owners?
Retirement for small business owners often looks different than it does for employees.
That's because while retired employees may enjoy the many benefits of a pension or saving in an employer-sponsored retirement plan throughout their careers and receiving a match, many business owners will not. In addition, while many retired employees have a simple transition, as they pick the date they'd like to retire and give their notice—the retirement transition can be much more involved for small business owners. That's because many owners will need to either sell their business to retire or, at the very least, hire someone to take over when they step away.
But ultimately, small business owners are masters of their destiny when it comes to retirement, and by investing wisely, diversifying away from their core businesses and creating a financial safety net, they can maximize the value of their hard work and create an abundant retirement. And with proper planning, retirement can be a time of financial security and a time to pursue personal passions after years of dedication to one's business.
First, however, business owners must consider how they will prepare for retirement.
Investing through a retirement plan with big tax savings.
One of the keys to a successful and healthy retirement is saving often and early, creating security outside of the core business and allowing compound interest to work in your favor.
Thankfully, there are several types of retirement plans to choose from, each tailored to meet a small business owner's specific needs.
At a high-level, 401(k)s plans can be a great option for small business owners with or without employees. They are a common retirement account with high annual contribution limits and a lot of flexibility in terms of plan design for business owners. In addition, the costs to manage and administer a 401(k) have decreased dramatically over the years, making them a great option for many. They also create opportunities for significant tax deduction.
For some business owners, a Defined Benefit Plan may be a good fit to create even larger tax deductions, but these plans are more complicated and not a good fit for all businesses. Professional help will always be required, but defined benefit plans for some can be the best tax-saving and retirement preparing tool in their arsenal.
Additionally, owners may decide to set up a Traditional or Roth IRA outside of their business in addition to, or instead of, a 401(k). IRAs can be a good option as they are simple to set up and fund, but they do have much lower annual contribution limits than corporate-sponsored retirement plans.
Many people wonder if they will be best-served contributing pre-tax to retirement accounts or by making Roth contributions. Ultimately, there's no one-size-fits-all approach, but due to the complexity of all the variables most people would be well served receiving a professional analysis of this question for their situation.
Sam Watkins, CFP® TrueNorth Wealth
TrueNorth Wealth is a zero commission, fee-only, financial planning firm. TrueNorth Wealth specializes in high-net-worth individuals. We offer academically sound financial planning, and we educate each client on what our investment philosophy is, and why. We take an active role in helping each client examine their tax bill each year and creating meaningful strategy to manage that tax liability. If you are looking for an exceptional advisor, call TrueNorth Wealth for a no-cost consultation, today! 801-274-1820Begin with the end in mind
A common pitfall for business owners is not planning early how they will sell or otherwise exit the business when it is time to move on. From ownership agreements between partners to business positioning for external sale, many business decisions would be better made with the long-term exit plan in mind. A windfall at the exit of a business is often the most significant way for business owners to create financial independence, and business decisions now can have huge ripple effects on that windfall years down the road.Once the windfall arrives, how do you turn that into income to meet your lifestyle?
All these issues, from retirement plans and tax savings to business exit and windfall considerations are vital for business owners to address. Having competent, experienced and ethical professionals in your corner greatly enhances your chances of making optimal decisions at every fork in the road.
For our team at TrueNorth, it's about so much more than money. It's about serving families all across Utah and helping them achieve freedom and flexibility in their lives. To learn more or schedule a no-cost consultation, visit our website at TrueNorth Wealth call (801) 274-1820.
