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Tips for Retirement for Entrepreneurs

| October 13, 2015
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When you work for a major corporation, something as important as your retirement is often an afterthought for most employees. After all, it is the employer's responsibility to provide in-full or partially for your retirement. What happens when you're the employer? What are the options for entrepreneurs, and which ones work best in different scenarios? If you are wondering how you should be handling your retirement account, read the following tips so you can get everything on the right track.

Offer Retirement Options to Employees

If you're the boss of the company and have numerous employees, you have a range of options available to offer your staff. The popular options in this scenario is a contributory IRA. This type of plan offers a low-cost approach and is payroll deductible. There are tradeoffs to consider when looking at the Simple IRA and 401(k) as an entrepreneur with employees. According to Market Watch, a 401(k) has a higher deferral amount, but also comes with higher costs and compliance testing.

A Simple IRA is often preferred by cash-strapped entrepreneurs because it offers lower costs, less administrative oversight, and transferability to other plans (such as a 401(k)) in the future.

Options for You as an Entrepreneur

For those entrepreneurs who lead their own business as an army of one, there are additional options to consider. Among the choices here are the SEP IRA and solo 401(k). As noted by QuickBooks-Intuit, there are pros and cons that come with each of these plans. A Simplified Employee Pension IRA, or SEP IRA, is a business tax deduction and offers tax-free growth. There's no reporting to the IRS, setup is easy, and there's no annual funding requirement.

On the downside, the SEP IRA offers a higher contribution limit for those making less than $212,000. Also, catchup contributions are not allowed for those entrepreneurs over the age of 50. The solo 401(k) offers more bang for your buck, literally, allowing $18,000 in tax-deferred contributions as an employee and the ability to contribute up to 25% as an employer. On top of that, you can make catchup contributions once you pass 50 years of age, and your spouse can also contribute to the plan.

Spread Your Wealth

The plans mentioned above are great, but if you find yourself meeting maximum contribution levels, you may want to consider exploring Roth IRA and traditional IRA options on the side. The contribution levels are much lower, but you'll have the chance to build additional wealth for your retirement. Keep in mind that a traditional IRA offers fewer taxes now, but higher taxes on withdrawals in the future, while the Roth operates the exact opposite (tax now, tax-free future).

Balance Spending and Saving

The best way to build your wealth for the future is to start early and safeguard your earnings today. When you invest in your retirement earlier in life, you give your money the chance to earn compound interest, maximizing the growth potential of your investment funds. This makes it easier to put your money in safer, conservative portfolios because there is no rush to try and save a vast sum of money in a short span of time.

Do what you can now to help your savings along in the future. Avoid overspending on things you don't need, and try to live within (or below) your means so you can put more of your money toward a savings plan.

Consider the Value of Your Business

If you're already thinking about retirement, then you should also be considering the future of your business. If you're a solo entrepreneur, then the odds are pretty high that your business will close its doors when you decide to step aside. For those entrepreneurs with employees and a clientele base that will rely on your products/services well into the future, you'll want to estimate the size and value of your business for when you sell.

Think about the necessary changes that could improve revenue and profitability, as well as the management structure and prospects for growth in the future.

Last but not least, do what you can to defer income for the business while accelerating expenses. Cash-based businesses recognize income and expenses when they are received or paid. You can decrease year-end tax liabilities by making major purchases at the end of the year and not invoicing clients to collect income until January.

These tips are just a few helpful stepping stones that can prepare entrepreneurs, and their businesses, for retirement. As always, consult a financial planner to help you devise a comprehensive strategy to safeguard your future while ensuring the future success of your company.


These are the views of Social Advisors, and not necessarily those of the named representative, Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.


Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Richard L Farrar is a registered representative of Lincoln Financial Advisors Corp. Securities offered through Lincoln Financial Advisors Corp., a broker/dealer (Member SICP). Investment advisory services offered through Sagemark Consulting, a division of Lincoln Financial Advisors, a registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies. CRN-1323140-101215


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