RETIREMENT TIPS FOR ENTREPRENUERS


“Entrepreneurs are a rare breed. True entrepreneurs never stop creating. This suggests that they also never completely stop providing value to the world. While it's fine to save up and "relax" as you get older, retirement as we know it is not an option. Money should never be a motivator either. Continue doing what you're doing as long as you are improving the lives of others along the way.”

-Logan Lenz of Endagon

The early you start the better!! Compounding is phenomenal!! If you are a seasoned entrepreneur or one just launching a startup you should consider the options, you have when saving for retirement. Company-Sponsored HSA’s 401(k)’s or IRA’s are all ways to start saving for your retirement, keep reading to gain tips on saving for retirement and which retirement vehicle better suits you and your business.

  1. Keep it separate- Open a separate checking and savings account and credit card used solely for business expenses. This does a few things:

  2. Provides a clear picture of how much your business needs to financially survive. What expenses you can eliminate when retiring and which ones you need to keep.

  3. Helps you to identify how much money you can contribute to your retirement account from your personal and how much you can match with your business income.

  4. Helps with Tax Planning. The IRS prefers to see your business monies separated from your personal monies.

  5. Retirement Account Options

  6. 401 (k) Plans

  7. Allows you to make salary deferrals up to $18,000 (plus additional $6,000 if 50 and over), on pre-tax or designated ROTH contributions (https://www.irs.gov/retirement-plans/retirement-plans-faqs-on-designated-roth-accounts)

  8. Can contribute up to an additional 25% of net earnings from self- employment for total contributions of $53,000, which include the salary deferrals (if you contribute the maximum of $18,000 in salary deferrals then you can only contribute the remainder of $35,000).

  9. This plan also allows you to tailor the access to your funds, whether you want to be able to withdraw from your funds during a financial hardship or take loans from your funds.

  10. One participate 401 (k) or sometimes called a “solo-401(k), “individual 401 (k), or “uni-401 (k). This type of account covers a business owner with no employees or that person and his or her spouse. https://www.irs.gov/retirement-plans/one-participant-401-k-plans

  11. Simplified Employee Pension IRA.

  12. Can contribute as much as 25% of net earnings from self-employment, up to $53,000, whichever is smaller.

  13. Can be opened through a bank or any other financial institution

  14. Or submit Form 5305-SEP, Simplified Employee Pension- Individual Retirement Accounts Contribution Agreement

  15. Savings Incentive Match Plan for Employees IRA

  16. A SIMPLE IRA is a retirement plan designed for and available to any small business with 100 or fewer employees. The employer is required to contribute either a matching contribution of 3% of compensation or a 2% non-elective contribution for each eligible employee (meaning the employer contributes even if the employee doesn't). An employee can contribute $12,500 in 2015 and 2016 plus an additional $3,000 if you are 50 and over)

  17. To establish the plan, Fill out forms:

  18. 5305-Simple, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) – for Use With a Designated Financial Institution,

  19. 5304-Simple, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) - Not for Use With a Designated Financial Institution,

  20. A bank or other financial institution at any time January 1 through October 1. If you became self-employed after October 1, you can set up a SIMPLE IRA plan for the year as soon as administratively feasible after your business starts.

  21. Profit-sharing Plan

  22. You decide how much to contribute on an annual basis up to 25% of compensation

  23. Money Purchase Plan

  24. Must contribute a fixed percentage of income every year, up to 25% of compensation, according to a formula state in the plan you establish

In summary, when saving for retirement, the earlier you start, the better chance your principal has to grow. Also, if your startup goes broke, your retirement accounts are typically safe from creditors! Happy Saving for Retirement my fellow Entrepreneurs!

Resources:

Types of Retirement Plans https://www.irs.gov/retirement-plans/plan-sponsor/types-of-retirement-plans-1

Calculating Your Own Retirement-Plan Contribution and Deduction when Self-Employed https://www.irs.gov/retirement-plans/self-employed-individuals-calculating-your-own-retirement-plan-contribution-and-deduction

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