Running a business presents unique challenges and opportunities that can significantly impact retirement planning. Here, we’ll share some reasons why retirement planning differs for business owners and explore some key considerations they should consider.
Business Owners Are Both Plan Sponsor and Contributor
One of the primary distinctions for business owners is the dual role they often play as both business operators and retirement planners. Unlike employees who contribute to employer-sponsored retirement plans, business owners must establish and manage their own retirement accounts. This includes deciding on retirement account types, contribution amounts, and investment strategies.
Business Owners Often Have Variable Income Streams
Business income can be variable, which adds complexity to retirement planning. Unlike employees who receive a consistent paycheck, business owners' income can fluctuate based on business performance. This variability impacts the ability to predict future retirement savings and requires flexibility.
Retirement Planning for Business Owners May Include an Exit Strategy
For many business owners, their business represents a significant portion of their retirement nest egg. Determining the value of the business and planning for its eventual sale or transfer is a critical aspect of retirement planning. This process involves understanding market trends, conducting business valuations, and developing a strategic exit plan.
Business Owners Should Diversify Their Investments
While the business is often a significant asset, retirement planning for business owners should also focus on diversification. Solely relying on the business for retirement income can be risky, particularly if market conditions or industry changes affect business performance.
Diversifying retirement savings into other assets such as stocks, bonds, real estate, or alternative investments can provide additional security and stability. This diversified approach hedges against the risks of business ownership and market volatility.
Business Owners Have Different Tax Considerations
Taxes play a substantial role in retirement planning for business owners. Understanding the tax implications of various retirement accounts, contributions, and withdrawals is essential for optimizing retirement income.
Business owners have access to unique retirement account options, such as SEP-IRAs, Solo 401(k)s, and SIMPLE IRAs, each with its own tax advantages and contribution limits.1
Additionally, the sale of a business can have significant tax implications.2 Proper tax planning can help minimize tax liabilities and preserve more retirement funds. Working with a financial advisor who specializes in business owners' needs can provide valuable insights into tax-efficient retirement strategies.
Retirement planning for business owners requires careful planning and unique strategies that are different than those for employees. From the dual role of managing the business and retirement accounts to navigating variable income streams and tax implications, business owners face a distinct set of retirement planning challenges and opportunities. If you are interested in speaking with an advisor regarding your business, please contact our office at 219-465-6924.
Kotys Wealth Professionals
- https://www.investopedia.com/articles/personal-finance/120314/top-retirement-strategies-small-business-owners.asp
- https://www.irs.gov/businesses/small-businesses-self-employed/sale-of-a-business
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.
** Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Kotys Wealth Professionals (“KWP”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from KWP. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. KWP is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of KWP’s current written disclosure Brochure discussing our advisory services and fees is available upon request. Please Note: If you are a KWP client, please remember to contact KWP, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. KWP shall continue to rely on the accuracy of information that you have provided or at www.kotyswealthpro.com. Please Note: IF you are a KWP client, please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.