4 Ways Business Owners Can Catch Up for Retirement in a Hurry

4 Ways Business Owners Can Catch Up for Retirement in a Hurry

October 01, 2021
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Being a business owner is no easy task. You’re responsible for every aspect of your business, making sure it runs smoothly. But at the same time, the reward of being able to direct and control your own environment, to make your life what you want it to be, is unparalleled. As a business owner, it’s easy to fall into the trap of being so busy making things run that you forget about yourself—specifically your retirement! You love what you do, but you do have to retire someday. Here are a few ways to shift your focus and catch up for retirement in a hurry. 

1. Create a Strategic Retirement Plan

A common struggle business owners face is creating a plan to convert their successful business into long-lasting personal wealth, namely retirement. Since you likely already have an IRA or Roth IRA to your name, let’s look at some other options to maximize your savings and reap the tax benefits. 

Solo 401(k)

A solo 401(k) is similar to a traditional 401(k) you’d contribute to as an employee. Funds invested within a solo 401(k) plan grow on a tax-deferred basis. The powerful feature of this plan is that you can contribute in two separate capacities, as an employee and as an employer. Wearing your employee hat, you can defer up to $19,500 (or $26,000 if age 50 or older). As the employer, you can also contribute up to 25% of compensation as defined by the plan. Combined, you can contribute up to $64,500 if you’re over the age of 50.

Adding a Defined Benefit Plan

In order to save more than what your IRA limits you to, you can set up a defined benefit plan. These plans have much higher tax-advantaged contribution limits and can be designed to fit the needs of almost any business. Depending on your age and income, a defined benefit plan allows you to set aside up to hundreds of thousands of dollars to fund your retirement, making it possible to save a lot, even if you have little time. Defined Benefit Plans are not subject to the 25% employer deduction or participant contribution limitations. Be aware, these plans can be expensive to set up and maintain.

Ultimately, everyone’s situation is unique, so there’s no one right solution. However, for many people, it makes sense to contribute pre-tax and post-tax dollars to several different accounts. 

2. Look Ahead to the Future

What will happen to your business when you want to retire or can’t run it anymore? Are you hoping to sell it? Pass it on to family members? Just close up shop? Around 78% of small business owners plan to sell their businesses to fund their retirement, with the sale profits funding 60-100% of their retirement needs. (1)

It is important to start putting together a succession plan long before you expect to need it. The process of creating a proper succession plan can feel difficult and overwhelming for many—this is where professionals can greatly assist owners by illustrating and implementing a clear and concise process from beginning to end. Smooth transitions take time and strategic planning, and you should always be prepared for the unexpected. 

3. Watch Those Taxes

Taxes are a necessary evil for everyone, but especially business owners. Between payroll tax, federal and state income taxes, capital gains taxes, and corporate income taxes, the effect of taxation can take a toll on your wealth. Having a tax plan can help you maximize tax deductions, minimize your taxes both now and in retirement, and create a tax-efficient estate plan. 

4. Partner With a Professional

There’s no doubt that owning a business complicates life and finances. You’re faced with a multitude of considerations: employees, taxes, taking care of your family, saving for retirement…the list goes on. Given your unique situation, you would benefit from working with a fee-only wealth manager specializing in serving business owners who can bring an experienced, objective perspective to the table.

We at Anderson Financial Strategies understand the challenges you face as a wealthy business owner. We specialize in supporting clients just like you with our family office-style services. We aim to help our clients organize and focus their financial life by tailoring our services to address their specific financial needs. If you’d like to learn more about how we can help you catch up for retirement in a hurry, or explore our services for your family or business, please call us at 855-237-4545 to schedule an executive briefing to discuss your goals.

About Shon

Shon Anderson is president and chief wealth strategist at Anderson Financial Strategies, LLC with over 15 years of experience. As a fiduciary, Shon’s mission is to provide his clients with quality financial expertise along with rapidly responsive service through an honest relationship. He specializes in providing family office-style services to help his clients organize and focus their financial life. Shon graduated from Wright State University with a bachelor’s degree in financial services and an MBA in finance. He is a CERTIFIED FINANCIAL PLANNER™  (CFP®) practitioner and holds the Chartered Financial Analyst (CFA®) designation. His insights have been quoted in leading financial news publications such as CNBC, Yahoo Finance, Fox Business, Consumer Reports, Forbes, Bankrate.com, Investment News, and Kiplinger. Shon serves as an adjunct professor teaching personal finance courses at Wright State University, leads CFP® exam review courses for Keir Educational Resources, and is president of the CFA Society Dayton. Shon and his wife, Jessica, reside in Sugarcreek Township, Ohio, and are blessed with triplet daughters, Elizabeth, Bridgette, and Alexandra, along with their son, Jacob, and dog, Jack. Over the years, Shon has been involved in several volunteer organizations including the Wright State chapter of Delta Tau Delta as an alumni adviser and was a Big Brother in the Big Brothers/Big Sisters program. To learn more about Shon, connect with him on LinkedIn.

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(1) https://www.pnc.com/insights/small-business/business-planning/selling-business-to-fund-retirement.html#:~:text=Few%20actually%20use%20it%20to,100%20percent%20of%20their%20retirement