As a business owner, you wear many hats, from managing daily operations to planning for long-term growth. But in the hustle of running your business, it’s easy to overlook your own retirement savings.
Unlike traditional employees, you don’t have an employer-sponsored plan to fall back on, so it's up to you to take charge of your retirement strategy. In this article, the team at Hilltop Wealth & Tax Solutions will share some tips and strategies to help you maximize your retirement savings.
Are You a Business Owner? Don’t Jeopardize Your Retirement Savings
As we said above, it can be so easy to get caught up in the hustle and bustle of business ownership and managing your employees’ needs that your own needs can fall by the wayside. And one of those things that can be pushed off is your own retirement planning.
Thankfully, it doesn’t have to be that way. Business owners of all sizes can choose a plan that works for their needs, helping to provide that safety net that will pay off when retirement time rolls around.
Here's the plan of action.
1. Start with a Retirement Plan Tailored for Business Owners
Choosing the right retirement plan is the first step to building your retirement savings. As a business owner, you have several options that offer tax advantages and high contribution limits. Some of the most popular plans include:
SEP IRA (Simplified Employee Pension Plan)
A Simplified Employee Pension Plan allows you to contribute up to 25% of your income or $66,000 (for 2023), whichever is lower. It’s easy to set up and doesn’t require annual filings with the IRS.
Solo 401(k)
If you’re self-employed with no employees, a Solo 401(k) is a great option. You can contribute both as an employer and an employee, allowing for potentially higher savings. In 2024, you can contribute up to $23,000 as an employee plus 25% of your business income as the employer.
SIMPLE IRA (Savings Incentive Match Plan for Employees)
A SIMPLE IRA is ideal for small business owners with fewer than 100 employees. You and your employees can contribute, and the plan is relatively easy to maintain.
2. Set Up Automatic Contributions
One of the best ways to build your retirement savings is to make contributions automatically. By setting up recurring transfers to your retirement account, you won’t have to worry about remembering to contribute each month.
This “set it and forget it” approach helps you stay consistent with your savings and makes it easier to reach your goals.
3. Take Advantage of Tax Breaks
As a business owner, you have access to several tax breaks that can help you save more for retirement. Contributions to your retirement plan are usually tax-deductible, which can lower your taxable income.
Additionally, certain plans like a Solo 401(k) offer Roth options, allowing you to make after-tax contributions and enjoy tax-free withdrawals in retirement. Talk to a tax professional to understand which strategies work best for your situation.
4. Diversify Your Investments
Diversification is key to growing your retirement savings while managing risk. Don’t put all your money into one type of investment. Instead, spread your savings across a mix of stocks, bonds, real estate, and other assets. This way, if one investment performs poorly, others may help balance it out.
Regularly review and adjust your portfolio to align with your retirement goals.
5. Plan for Business Succession
Your business is likely one of your biggest assets, so planning for its future is a smart way to support your retirement. Whether you plan to sell the business, pass it down to family members, or have it continue under a successor, having a clear business succession plan can help you maximize the value of your business when you retire.
The proceeds from the sale or transfer can significantly boost your retirement savings. It can also give you the peace of mind you need to make that final leap into retirement.
Building a Strong Retirement Future
Maximizing your retirement savings as a business owner requires careful planning and a proactive approach. By selecting the right retirement plan, automating contributions, taking advantage of tax breaks, diversifying your investments, and planning for business succession, you can build a solid foundation for your retirement years.
If you’re unsure where to start, consider seeking advice from a financial professional at Hilltop Wealth & Tax Solutions, who can help you develop a strategy tailored to your unique needs. Contact us today.