Do You Have a Future Financial Plan?

Tax season is here. Time to think about your retirement, too!

If you are an entrepreneur, you probably spend hours creating valuable products and services, hiring and training team members, marketing, dealing with vendors, and much more. The last thing on your “To Do” list may be planning for your retirement. However, they say that “time flies when you’re having fun,” so it might be a good idea to stop and think about your financial future now. Plus, it’s tax season and you’re probably reviewing your finances, anyway! 

Now, Little PINK Book does not offer tax, financial or legal advice, but we did catch up with Doug Reed, the CEO and CIO of AtlanticMidwest Investment Research, LLC, to ask him a few questions. (Note that his responses below simply provide his opinion. Please consult a qualified professional for assistance with any tax, financial or legal issues.)

 Here are some insights from his interview…

• What can small business owners do to prepare for retirement even if they don’t have a lot of money saved up?

The first thing you can do is make sure to pay yourself first. Business owners get caught up in everyday expenses. Make saving for retirement a very important expense that you need to cover each and every month.

The next thing you can do is save for retirement in a tax-friendly manner. In my opinion, the easiest way to do this is by setting up SEP-IRA, or if you have employees, set up a SIMPLE IRA. With a SEP-IRA, you can save up to $61,000 pre-tax. The difference is you get to keep the money and save on taxes. With a SIMPLE IRA, it’s possible to save up to $14,000 pre-tax for 2022. And if you’re over the age of 50, you can add an additional $3,000, for a total of $17,000 pre-tax for 2022. I think these are relatively fast, easy ways to save for real financial freedom.

• What can entrepreneurs do now to help them save for retirement and emergencies?

I think that a truly awesome way for business owners to save for retirement, as well as emergencies without tying up their money in an IRA, is to open a brokerage account and have that money invested in a qualified dividend-oriented exchange traded fund.

While you won’t realize an immediate tax break for putting money into the account, qualified dividends are taxed at the long-term capital gains rates. The reason this is important is because for a single filer, you may not have to pay any tax on qualified dividend income or long-term capital gains until you reach about $40,000 in income inside of the account for a single filer.

For a married person filing jointly, your income from the account could be up to $80,000 for a year without triggering taxes. For the single filer, this might mean your account could grow to approximately $1,000,000 before realizing taxes on the account. For a married joint filer, the account might be able to reach $2 million dollars. In my opinion, this is an often-overlooked saving and tax advantage strategy that gives you complete access to your money at all times, without penalties, and may give your retirement an extra boost.

• What other tips do you have to help new small business owners prepare financially for their future?

The easiest way for small business owners to prepare for their financial future is simply to make a plan. When you went into business, you most likely created a business plan. It’s the same thing for your overall, personal financial future. Your personal financial plan should consider short, intermediate as well as long-term financial goals.

Making sure that you have adequate amounts of disability insurance, health insurance and life insurance to cover you and your family’s needs is truly important. The next thing is to make sure that you’re saving using a bucket strategy. Your savings and investment goals should include short-term immediate needs such as business and personal expenses, intermediate needs such as the down payment on automobiles, homes or large business expenses and long-term retirement-oriented financial goals.

Here’s where things get a little bit different than the typical employee. I think you should consider what is the best thing based on your business of how to save for retirement. It could be using a SEP-IRA, a SIMPLE IRA, a 401k or other qualified plan. In addition, you need to consider the potential future value of your business. However, don’t get caught up in the future value. It could be everything or nothing. In the meantime, put money strategically into those buckets.

Thanks, Doug!

Hopefully, this gets you thinking about your future and your retirement plan. Be sure to consult a qualified professional to help you make the best financial decisions for your specific situation. 

If you’d like to learn more, check out some of our financial articles here.