Q: As a newer business owner, I want to better understand how I can save for my retirement and also how I can help my employees save too, as my business hopefully grows. What options do I have vs someone who doesn’t own a business?
A: Running a business presents unique challenges and opportunities that can significantly impact traditional retirement planning. Here are some reasons why retirement planning differs for business owners, and some key considerations you may wish to explore.
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. Additionally, the sale of a business can have significant tax implications. Proper tax planning can help minimize tax liabilities and preserve more retirement funds. Working with a financial advisor and tax-advisor who specialize in business owners’ needs can provide valuable insights into tax-efficient retirement strategies.
As you can see, retirement planning for business owners requires careful planning and unique strategies that are different from 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. I’d recommend speaking with your tax and financial advisors to discuss what planning opportunities may make sense for your unique situation.
Jeremy R. Gussick is a Certified Financial Planner™ professional at Gussick & Barnett Financial Planning, affiliated with LPL Financial, the nation’s largest independent broker-dealer.* Jeremy specializes in the financial planning and retirement income needs of the LGBTQ+ community and was recently named a 2024 FIVE STAR Wealth Manager as mentioned in New Jersey Monthly.** He is active with several LGBTQ+ organizations in the Philadelphia region, including DVLF (Delaware Valley Legacy Fund) and the Independence Business Alliance (IBA), the Philadelphia Region’s LGBT Chamber of Commerce. OutMoney appears monthly. If you have a question for Jeremy, you can contact him via email at [email protected].
This content is developed from sources believed to be providing accurate information and provided with the assistance of 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.
Jeremy R. Gussick is a Registered Representative with, and securities and advisory services are offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.
Gussick & Barnett Financial Planning and LPL Financial are separate entities.
*As reported by Financial Planning magazine, June 1996-2023, based on total revenues.
**Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2023 Five Star Wealth Managers.
