Small Business Owners: What Are Your Options When It Comes to Retirement?

For small business owners, retirement planning can be complex and daunting.

That’s because there are many factors to consider, such as how much you need to save, when you can retire, whether you can sell your business, and what type of retirement account is best for you. However, with careful planning and consideration, you can develop a retirement plan that suits your needs and gives you peace of mind knowing that your golden years are well-funded.

And really, that’s what everyone aims for in retirement: the security and peace of mind that they can maintain their living standards even when they stop working.

But for many small business owners, that concept can feel foreign, as they have dedicated themselves to their business and have understood that if they’re not running the day-to-day, they may not be bringing in income.

So, if you’re a small business owner that is preparing for retirement, it may be wise to consider all the different options you have available, from establishing your own retirement plan to selling your business to fund your retirement.

What does retirement look like for small business owners?

Retirement for small business owners often looks different than it does for employees.

That’s because while retired employees may enjoy the many benefits of saving in an employer-sponsored retirement plan throughout their careers, many small business owners will not. In addition, while many retired employees have a simple transition, as they pick the date they’d like to retire and give their notice—the retirement transition can be much more involved for small business owners. That’s because many owners will need to either sell their business to retire or, at the very least, hire someone to take over when they step away.

But ultimately, small business owners are masters of their destiny when it comes to retirement, and by investing wisely and creating a financial safety net, they can maximize the value of their hard work and create a comfortable retirement. And with proper planning, retirement can be a time of financial security and a time to pursue personal passions after years of dedication to one’s business.

First, however, small business owners must consider how they will prepare for retirement.

Establishing a retirement plan to prepare.

One of the keys to a successful and healthy retirement is saving often and early, ideally in a tax-advantaged retirement plan.

Thankfully, there are several types of retirement plans to choose from, each tailored to meet a small business owner’s specific needs.

At a high-level, 401(k)s plans can be a great option for small business owners with or without employees. They are a common retirement account with high annual contribution limits and a lot of flexibility in terms of plan design for business owners. In addition, the costs to manage and administer a 401(k) have decreased dramatically over the years, making them a great option for many.

Next, owners may decide to set up a Traditional or Roth IRA outside of their business in addition to, or instead of, a 401(k).

IRAs can be a good option as they are simple to set up and fund, but they do have much lower annual contribution limits than a 401(k) plan. But, whichever way you lean, the primary key is establishing and funding a retirement plan consistently over your working years. This will help ensure that you achieve a healthy and secure future retirement.

In addition, when funding their future retirement needs, it can be wise for small business owners to aim for various tax account types.

For example, while many choose to contribute to a Traditional 401(k) or IRA to get a tax deduction now, others choose to contribute after-tax funds to a Roth plan that will distribute tax-free during retirement. And others may choose to save some in a taxable brokerage account that can offer the flexibility of penalty-free withdrawals before age 59.5.

Ultimately, there’s no one-size-fits-all approach, but it can be valuable to aim for savings in each account type to create a tax-optimized retirement paycheck during your golden years by balancing distributions across the various account types.

And in the end, deciding how to fund your retirement is a complicated but essential task for small business owners. There are many types of retirement plans available, each with its own set of benefits and drawbacks. But, the best method for you will depend on the needs and goals of your business. We hope this article has given you a better understanding of the options available and helped you begin forming a plan for your retirement funding.

TrueNorth Wealth Retirement Services is here to help.

If you’re interested in working with TrueNorth’s Retirement Team to help understand the benefits of establishing a retirement plan for your small business, then TrueNorth Wealth is here to help with your retirement services.

TrueNorth Wealth is among the top retirement planning firms in Utah and Idaho, with offices in Salt Lake City, Logan, St. George, and Boise. At TrueNorth Wealth & Retirement, we focus on helping our business owner clients build long-term wealth while maximizing the benefit of their retirement plan.

For our team at TrueNorth, it’s about so much more than money. It’s about serving families all across Utah and helping them achieve freedom and flexibility in their lives. To learn more or schedule a no-cost consultation, visit our website at TrueNorth Wealth or call (801) 285-0780.