As tax time begins to sneak up on us, it is time again to start thinking about what can be done now for retirement planning for small business owners. While most small business owners simply want to put every penny back into the business, not planning for retirement can be catastrophic later in life. As such, here are 4 retirement planning tips for small business owners which won’t break the bank.
- Make an Annual Contribution to a Traditional IRA – The most basic of retirement plans, a traditional IRA allows you to contribute up to $5,500 per year ($6,500 after the age of 50) into a tax-deferred vehicle. The money you contribute is deducted from your taxes this year, then you pay taxes when you withdraw it in retirement. $5,500 is not much, but over a lifetime with compounding interest, it can be a huge boost in allowing you to retire. If you’re married, consider establishing an IRA for your spouse, as well, allowing you to contribute $11,000 per year (or $13,000 after 50).
- Learn Your IRA Options – While the Traditional IRA is a nice option available to everyone, some small business owners can take advantage of better IRAs. These can include SIMPLE IRAs, SEP-IRAs, and 401k plans. Each of these has different pros and cons, but each allows you to contribute more than a Traditional IRA and can be a much better option for long-term wealth acquisition. And if you are an older business owner who never saved for retirement, the higher contribution limits may be necessary for you.
- Consult a Professional – This can be a Financial Planner, a Financial Advisor, or your local banker who is versed in retirement planning. But meet with someone who analyses retirement plans for a living, and let them help you create a plan. Then, let them help you find the right investments.
- Stick With Your Plan – If you create a plan to contribute $20,000 per year to your SEP-IRA, then do it. If your plan involves quarterly reviews with a Financial Planner, then have the meetings. Understand your plan, stick to it, and be ready to change it as needed.
If you follow this roadmap to retirement, you will get there. It may take longer than you hoped, and your plan may ultimately lead to you working longer than you wanted, but at least you’ll get there someday. Relying on the business to maintain a value so you can sell it may not always work. Innovation, changes in trends, and regulations can devalue well-established businesses overnight. But a good retirement plan can weather any storm.