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When You’re the Boss: Planning for Your Retirement

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Many self-employed people are nearing retirement age. Whether they provide business services on their own or run a small firm, most appear to be unprepared for what the future will bring without a regular income. Even worse, many claim their Social Security much earlier, leaving them with little to no financial cushion. Are you in the same boat?

If you are and you still have time, you need to start looking at how you can make your money work for you. You need to start planning for your retirement before you shut down or exit the business.

Retirement Options When You’re Self-employed

You’ll have four retirement plans to consider. And whatever option you go with, you’ll be glad to know that your contributions will be tax-deductible.

Your options are:

1. Simple IRA – it combines the features of an IRA AND 401 (K) plan. You can choose this option if you’re a solo entrepreneur or a small business owner with 100 (or fewer) employees.

2. Keogh Plan – it’s one of the more complicated plans among your options, but it has greater potential to help you save more for retirement. Your total contributions can go to more than $50,000 a year. It’s suitable for self-employed or unincorporated businesses.

3. SEP IRA – the simplified employee pension is good for solo entrepreneurs with one or two workers. You can contribute more to this plan, but you need to make enough money to do so while putting in up to 25 percent of your eligible workers’ compensation.

4. One-Participant 401 (K) – for solo entrepreneurs without employees. In contrast to the standard 401 (K), this option allows you to contribute as an employee and employer.

These traditional retirement plans are not your only options for a secure financial future.

Get Your Affairs in Order

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Another option you might not be thinking about has to do with your estate. Estate planning is crucial to your financial security, whether you have kids. This form of financial advice is also an excellent way to minimize your tax liabilities.

But don’t stop at creating your will, trust, power of attorney, and other relevant documents.

Seek the expertise of a financial planning attorney to help you make sound decisions about your assets. You get not only guidance about your retirement savings but also your investments and insurance choices.

You can also think about selling your business to fund your retirement. If you don’t see the company having any value as an inheritance for your loved ones, look at whether it’ll be practical to sell it. And much like you’d sell your home, you need to prepare for this commercial transaction.

First, get a professional to assess its value, from its assets to potential future earnings. And second, develop a succession plan when your business employs workers. A succession plan determines an adequate timetable for the sale of the company, the transition process for the new owner and the employees, and your exit from the business. The succession plan might also cover potential improvements to make the company more attractive for the buyer and ensure its stable performance.

You’ve worked hard to build a business. And because you have sole responsibility for everything, don’t overlook a crucial phase of your time with the company: your retirement. Plan today, and you’ll secure a stable future long after you’ve stopped working.

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