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Retirement Strategies and Tools for Small Business Owners

As an entrepreneur, you enjoy a lot of freedom in how you live your life and run your business. With that freedom comes a lot of responsibility, too, and not just the responsibility of the day-to-day operations or the overall profitability and success of your small business. 

You also need to consider the tasks involved in planning for your own retirement since you can’t rely on someone else for benefits like a 401(k) or pension. Thankfully, there are plenty of retirement tools you can use to design the financial future you want.

Leverage a Tax-Advantaged Retirement Account

You might not have a 401(k) an employer contributes to through a match, but as a small business owner you do have access to other retirement plans that you can use and fund:

These accounts allow you to make tax-deductible contributions, which is a big deal when you need to every tax advantage available to keep more money in your own pocket. A financial advisor can help you determine which of these account options makes the most sense for you, considering your specific financial situation, the type of business you run and your unique financial and business goals you want to achieve both now and years into the future. (For related reading, see: Solo 401(k) vs. SEP: Which Is Best for Biz Owners?)

Other Investment Options

You might have started your small business because you wanted to enjoy freedom and flexibility in your life. Lots of entrepreneurs are highly independent and want to live life on their terms. Sound familiar? Then make sure you don’t hem yourself in by selecting a retirement plan for your small business and calling it a day. That’s an important first step—but if you are considering early retirement, you need to know how you’ll create the necessary cash flow to cover your living expenses before you reach the age when you can withdraw from accounts like a SEP, SIMPLE, or solo 401(k) without penalty.

You may be able to use the profits your business generates if it can run without you and you can take a more passive role. But if you plan to rely a little more heavily on your nest egg in your retirement, you’ll want to consider contributing to a non-retirement account too.

Consider How Your Expenses and Taxes Will Change

It’s easy to justify what you spend today as something that’s helping you reinvest in the business—or at the very least, you can write it off as a business expense. But you may not be able to keep playing this card once you retire, especially if your role in the business significantly changes as part of that retirement. A CPA or tax professional can help you compare your budget today, when your business may be picking up the tab for some expenses, to retirement, when the ability to write off expenses diminishes.

Speaking of taxes, make sure you’re using the appropriate tax strategies as you plan out your retirement. Have you considered if a Roth conversion makes sense for you? Do you need to update how you file as a business entity around retirement? These are all open-ended questions, and the specific and correct answers depend on a number of factors unique to your financial situation. Take the time to sit down with a CPA and detail the proper tax strategies for you to leverage so you keep more of your hard-earned wealth. (For related reading, see: Top Tips for a Tax-Conscious Retirement.)

Your Succession Plan Is a Retirement Tool, Too

What happens to your business once you retire? This should be part of your financial and retirement planning, especially if you want the business to remain successful and profitable, or will depend on part of its revenue to fund your own lifestyle.

Here are some things you need to consider when building a succession plan:

  • Will you sell the business?
  • How much ownership will you retain?
  • What does your compensation structure look like after the succession plan is enacted?
  • Will you play any role in the business once you transition, or are you stepping fully out of day-to-day operations?
  • Put your plan in writing. You may want to work with an attorney to get documents in place to protect both you and your wealth through the transition process.

You May Not Be a Successful Financial Planner

Most entrepreneurs are hard-working, driven and intelligent. You have to be to run a successful business. Unfortunately, these traits can lead small business owners to think they can DIY their own finances (especially if they managed their business finances for years). While it is possible to create your own sound financial plan that accounts for all the retirement tools you want to leverage, it’s not easy.

For one, it’s tough to remain completely objective when it comes to your own future, which might lead to some massive mistakes or major oversights that can derail your entire retirement plan. Sometimes, the problem isn’t you did the wrong thing, it’s that you never knew what all to plan for in the first place.

It’s okay that you’re not a professional financial planner, you’re not supposed to be. The most successful entrepreneurs know it takes a team to get great results, and getting results from the retirement tools and strategies you need to use is no different. Instead of hiring employees, it’s time to think about hiring a money team to help you design the financial future you want.

Having an objective third party working in your best interest can be a game-changer in countless ways: Another professional can help you spot opportunities or advantages you might have missed or weren’t aware of, and they can help you think rationally when you’re feeling emotional.

Ready to get started? Learn more about the value of working with a professional to develop a strong financial strategy for you, in and outside your role as a small business owner.

(For related reading, see: Best Retirement Plan Options for the Self-Employed.)