Tailored Retirement Planning for Sacramento Business Owners

Retirement planning as a business owner can be challenging, no matter where you’re headquartered. Recent statistics show that 34% of all small business owners in the U.S. do not have a retirement planning strategy in place for themselves. Additionally, as many as 40% of business owners nationwide do not believe they can retire by age 65. 

As a Sacramento business owner, developing an effective business retirement strategy brings with it its own unique stresses and struggles. Many executives build their enterprise from the ground up, overseeing every decision and every calculated risk. However, turning your company’s success into a retirement plan requires a careful approach tailored to your specific circumstances. 

The good news? It’s never too early to start a business retirement strategy. Whether you have decades of leadership ahead of you, or you’re stepping away from the company in the next few years, there are steps you can take now to start saving for your future. Knowing your available options can help you make an informed decision on what makes the most sense for you.

Unique Retirement Challenges Faced by Company Owners 

The first thing to understand is that, as an owner, your retirement plan looks different from that of the average employee. Your company is more than just a source of income — it’s likely your most valuable asset. This can bring with it some specific challenges, such as:

Your Business Is Your Nest Egg

Some business owners do participate in a traditional 401(k) plan or other retirement vehicles. However, many executives pour all of their savings back into the organization, assuming they will recoup those costs when they sell or transition the enterprise. While this can be a viable strategy, it’s critical to diversify your savings plan. Relying solely on the sale or continued success of the company can be risky as market conditions and industry trends change. 

Varying Income 

Every company has its own cycles and seasons, which can positively and negatively influence the bottom line. During peak seasons, you might have surplus cash to invest in your future. However, when revenues dip, retirement contributions often take a backseat to operational expenses. This inconsistency not only affects your saving patterns but can also impact the compound growth potential of your future nest egg, making it crucial to develop a flexible savings strategy that adapts to your company’s ebbs and flows.

Complex Tax Landscape

Your business structure can significantly impact your retirement savings options. Whether you operate as a sole proprietorship, S corporation, or C corporation, each entity type opens different doors — and brings with potential obstacles — for savings. These structures affect everything from the kinds of accounts available to you, and contribution limits to how your income will eventually be taxed after you’re retired. Understanding your tax implications can help you develop an approach best suited to your needs. 

Retirement Savings Options for Business Owners

Fortunately, several retirement savings options tailored specifically for entrepreneurs offer flexibility and tax benefits. Some options to consider include: 

Individual Retirement Account (IRA)

IRAs are a popular choice for executives for several reasons. These accounts have no filing requirements. Additionally, IRAs can be used regardless of whether you have employees. Entrepreneurs can choose between a traditional IRA or a Roth IRA.  However, it’s important to know that IRA and Roth IRA contributions are subject to income limitations.

Solo 401(k)

Solo 401(k)s can be a sound option for self-employed individuals, allowing contributions as both employer and employee.

Group 401(k)

Group 401(k) plans are a great option for business owners who want to offer retirement savings to their key management team or employees. These plans are designed for companies with multiple employees, offer higher contribution limits compared to IRAs, and allow for both employee and employer contributions.

SEP IRA

A SEP IRA is similar to traditional and Roth IRAs. However, SEP IRA offers a higher annual contribution limit, making it an ideal option for higher-income years. According to the IRS website for 2024 contribution limits, SEP IRAs allow for 25% of the employee’s compensation, or $69,000. 

Cash Balance Plans

Cash Balance Plans can be valuable for high-earners looking to accelerate retirement savings while reducing the current tax burden. These plans combine the features of a pension with a 401(k)-style account balance, allowing for large, tax-deductible contributions. However, it’s important to know that these plans come with higher administrative costs, making it essential to consult a financial advisor to ensure it’s the right fit for you.

The Role of a Financial Planner in Retirement Planning

In fact, speaking with a professional advisor is critical no matter what savings vehicles you are considering. Navigating the complexities of retirement planning as an owner can be overwhelming. Partnering with a Sacramento retirement advisor who understands the unique needs of entrepreneurs can provide invaluable insights and support throughout the process. 

An experienced advisor can help you:

• Develop a comprehensive strategy that aligns with your business goals
• Identify and implement the most suitable savings vehicles for your situation
• Create a succession plan that maximizes the value of your business
• Manage the tax implications of your retirement and business exit strategies
• Ensure your personal and business financial plans work in harmony

We Can Help Build A Business Retirement Strategy on Your Terms

As a Sacramento business owner, you have a unique opportunity to shape your retirement on your own terms. If you’re ready to take the next steps, Capital Wealth Planners can help. Schedule a no-risk consultant with our team to explore ways to create a savings approach tailored to your specific needs and vision. 

Investment advice offered through Capital Wealth Planners, an investment advisor able to provide investment advice in states where it is registered, exempt, or excluded from registration.  Content contained herein should not be construed as an offer or solicitation for investment advice or for the purchase or sale of any security, insurance, or other investment product.  Investments involve the risk of loss, including possible loss of principal.  Please consult with a qualified financial, tax, accounting, or legal professional before implementing any ideas or strategies discussed here.  Content provided is obtained from sources believed to be reliable but cannot be guaranteed as to its accuracy or completeness.