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4 Retirement planning tips for small business owners

When you own a business, you may not think about saving for retirement the same way as others. Many small business owners may not realize the abundance of retirement savings accounts designed with their needs and interests in mind. Moreover, many plan to sell their business as their sole source of retirement income — which can be risky.

This was one of the discussion topics in the Just Right Advantage podcast series, Continuing the Conversation. During the podcast, host Portia Scott engaged Holly Kylen, President of Kylen Financials Inc., in a candid discussion about what every business owner needs to know about their retirement planning options.

 

Let's continue the conversation to look at a few key points business owners should consider when planning for the future and retirement. 

1. Selling your business may not be enough for retirement

As a small business owner, you've invested significant sweat equity into building your brand. But relying solely on the sale of your business for retirement income can be risky. For starters, market conditions can quickly change and dramatically impact the value of your business. And this can lead to substantial changes to your retirement outlook. At the same time, your business is likely to be worth much more to you than it is to potential suitors.

The best step is to get a professional, unbiased valuation today to learn what your business is worth. Implement this valuation into your overall retirement savings strategy. However, relying on the sale of your business as your sole source of retirement income means you're putting all of your eggs in one basket. Instead, you can strengthen your retirement strategy and open the door to potential tax advantages with retirement savings accounts.

2. Retirement savings accounts...you've got options!

There are a number of different retirement savings accounts specifically designed to help small business owners save in an efficient and tax-advantaged manner. However, choosing the best option can be confusing and have long-term implications. Because of this, we suggest working with an experienced financial planning professional for tailored guidance. A few common retirement savings options for small business owners and small businesses include:  

  1. Traditional IRA  
  2. Roth IRA 
  3. Simplified Employee Pension (SEP) plan 
  4. Savings Incentive Match Plan for Employees (SIMPLE) IRA Plan  
  5. 401(k)

Learn more about the similarities and differences of a SIMPLE IRA, SEP, and 401(k)

3. It’s never too late to start saving

Even if you haven’t funded (or even opened) a retirement savings account, it’s never too late to do so. Common wisdom says the earlier you open an account the better, but starting at any age can help you reap the benefits of compounding interest, tax-deferred investing and tax-advantaged withdrawals in retirements. 

It’s advisable to fund a retirement account even if you’re late to the game. Many retirement accounts allow you to make catch-up contributions, which can help make up for the lost time. IRAs and 401(k) all provide you with a window to increase your contributions beginning the year you turn 50. This can help you put away more money every year as you get closer to retirement.

Late in the game? Consider working with a financial professional for guidance.

The best way to save smart if you're late to the game is to work with a financial professional. These money pros can help you understand all of your options and decide which one works best for your unique situation. Your financial professional can even work alongside the potential sale of your business to help you see the total picture and chart the best path forward.

4. Create a succession plan

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A succession plan is, for most business owners, at the core of a solid retirement strategy. Succession plans are formal plans for someone else to either run your business or take ownership of it after your retire, become disabled or pass away.

Every plan should incorporate a few must-haves to put you on the right path to sell your business:

 

 

  • Well-defined short- and long-term objectives for the company
  • Written details about operations, procedures and policies
  • Details about your personal finances and how they connect to the business
  • Business valuation (preferably from a valuation professional)
  • A schedule for when certain events in the succession will happen
  • Several options for selling the business and their unique tax considerations
  • Financing needs to complete the transaction

As a small business owner, you've put years of hard work and sacrifice into its success. When it’s time to enter the next phase of your life, it’s essential to have a plan in place that will help you remain comfortable over the long haul.

Making sure you have a solid retirement plan in place often involves working with an experienced financial professional to create a tailored plan—not just relying on the value of your business’ sale. By doing so, you can confidently understand your options, create an exit strategy and move closer to achieving the future you've always envisioned.

Reach out to your Voya Relationship Manager to learn more about retirement plan solutions for small business owners.

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This information is provided for your education only by the Voya® family of companies.  Neither Voya nor its representatives offer tax or legal advice. Please consult your tax or legal advisor before making a tax-related investment/insurance decision.


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