Today is National Family Owned & Operated Businesses Day; an opportunity to honor business owners' incredible dedication and relentless effort into their ventures. But having your own business also comes with more financial responsibility.
Being a business owner is not merely a job; it's a lifelong commitment that requires resilience, vision, and tenacity.
The considerations and retirement savings plans that work for you, as a small business owner, should be paramount when planning for both your own retirement and that of your employees.
Let’s get started.
Fortunately, business owners can choose from many attractive retirement plans under the federal tax code. The best plan for you depends on factors such as the size of your company, how much you’re able to contribute each year and how many administrative duties you’re prepared to take on.
The SEP IRA is a popular retirement account that allows business owners to make tax-deductible contributions for themselves and their eligible employees. The employer makes contributions typically based on each employee's compensation percentage. This account offers flexibility and ease of administration, making it an appealing choice for businesses of varying sizes.
The SIMPLE IRA is designed for sole proprietors and businesses with 100 or fewer employees, the employer-sponsored SIMPLE IRA can be a cost-efficient way to contribute to both your and your employees’ retirement. Simple IRAs are subject to maximum contribution limits which are subject to change annually, so check the IRS for the most current information.
Annual employer contributions are mandatory. As the employer, you must make either a 100% matching contribution up to 3% of employee compensation, or a nonelective contribution equal to 2% of their annual compensation, but you cannot provide both. Investment choices vary by IRA provider, but generally include individual stocks, bonds, ETFs and mutual funds.
Another viable option is the Solo 401(k), specifically designed for self-employed individuals or business owners with no full-time employees except their spouses.
This retirement account permits employer and employee contributions, allowing for significant pre-tax contributions. The Solo 401(k) offers higher contribution limits than traditional IRAs and additional benefits such as catch-up contributions for those aged 50 and above.
Choosing the appropriate retirement account for your needs and business structure is a decision that should be made in consultation with your financial advisor. They can help assess your specific circumstances, including your business's size, structure, and employee considerations, to determine which retirement account aligns best with your goals and objectives.
Diversifying your investments is a fundamental strategy that can help business owners mitigate risks and enhance their financial security, especially when preparing for retirement. While your business may be your primary source of income and wealth, relying solely on it can expose you to potential vulnerabilities.
By diversifying your investments, you distribute your financial resources across various asset classes, such as stocks, bonds, real estate, and retirement accounts. This approach helps reduce the impact of any single investment's performance on your overall portfolio.
Starting early and setting clear retirement goals are fundamental steps for business owners to ensure a financially secure and fulfilling retirement.
When you start planning and investing early, you can take advantage of compound interest by giving your investments more time to grow. Even small contributions can affect your retirement savings.
Goal setting is a highly personalized process. Your goals may involve retiring early, passing on your business to your children/grandchildren, or you may have a specific financial target in mind.
Once you've identified your retirement goals, it's time to create a roadmap for achieving them. To ensure you're on the right path, consider consulting with a financial advisor with experience in retirement planning for business owners. They can provide valuable insights and assist you in creating a personalized plan based on your business's economic situation, projected income, and investment opportunities.
As a business owner, one of the most critical challenges is planning a smooth transition when you retire. For this you’ll want to explore an exit strategy for your business.
If you want it to fund your retirement – and to stop working – you’ll need to liquidate your investment. To prepare to sell your small business one day, it needs to be able to operate without you.
The state of the market can greatly influence your capacity to sell your business. As such, it could be a smart move to incorporate some flexibility into your retirement strategy.
More than 80 percent of U.S. businesses are family-owned. Forward-thinking owners know the importance of succession planning and the consequences on future generations of their family of failing to plan.
A closely held business without a succession plan, coupled with inadequate or nonexistent estate planning, can result in excess estate taxes, family feuds and general chaos upon the retirement or death of a significant owner. A written plan is essential to successfully transfer wealth to the next generation.
If you haven’t created a succession plan for your company, consult with your trusted Fiduciary advisor to get started.
Securing the financial future of your family-owned business requires a well-thought-out strategy.
On National Family Owned & Operated Businesses Day, let's recognize the hard work and dedication of business owners while also acknowledging the need for careful retirement planning.
At NJM Wealth Preservation Strategies, our experienced in this niche market means we can help small business owners put their financial life together, so you can spend your time focusing on what matters most.
Let us help you build a secure and prosperous future for you and your family, backed by our extensive wealth preservation and risk management knowledge.
Ready to get started? Contact us today to schedule a consultation and start your journey toward a happy retirement.