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A12 BUSINESS
Saturday 13 auguSt 2022

Don’t bank on your business to fund

your retirement

By KELSEY SHEEHY Nerd-
Wallet
Retirement can loom like
a dark cloud for small-busi-
ness owners. Many invest
blood, sweat and tears and
every penny into building
their business but never set
cash aside for the future.
A huge number of entre-
preneurs have reported
putting aside no retirement
savings at all. For some, sell-
ing the business is their only
retirement plan. Sheets of uncut $100 run through a printing press at the Bureau
That’s a risky bet, says Keith of Engraving and Printing Western Currency Facility in Fort Worth,
Hall, president and chief Texas, on Sept. 24, 2013.
executive officer of the Na- Associated Press
tional Association for the can. She and her husband sored 401(k), contributions
Self-Employed. contribute to his employer- are pre-tax and withdraw-
“You’re putting all of your provided retirement plan. als are taxed as income.
eggs in one basket. Not They each also put money SEP IRA: A Simplified Em-
just your current lifestyle, into individual retirement ployee Pension IRA, or SEP
but your future,” Hall says. accounts, among other in- IRA, operates much like a
“If something goes wrong, vestments. traditional IRA, except you
you sacrifice both.” “My biggest lesson has can contribute a lot more.
And the list of things that been to start, no matter Annual contributions are
could go wrong is long: how small the amount; it’s capped at $61,000 in 2022
Your business could fail. just important to start,” she versus $6,000 for a stan-
Your health could fail. You says. Determine what you dard IRA. Another key dif-
may not find a buyer. You can afford, whether that’s ference: If you put money
may have to sell for less 1%, 5% or 10% of your gross into your own SEP IRA, you
than you need. You may earnings, and commit to must contribute an equal
not be able to retire fully. it, Hall says. Over a long percentage to employees.
Rather than gamble on ev- enough window, even This option is best for solo-
erything going right, diver- small, regular contributions preneurs or those with few
sify your nest egg so it will will compound into some- employees.
last you well into your later thing meaningful. SIMPLE IRA: This option has
years. There are a number of re- a lower contribution limit,
MAKE RETIREMENT PLAN- tirement plans for small- up to $14,000 in 2022 (for
NING A PRIORITY business owners, each with those under age 50), but it
Saving for retirement is of- requirements, stipulations offers employee accounts
ten the last item on your and tax implications. and is easier for small com-
budget and the first to get TRADITIONAL, ROTH IRA: panies to administer than
cut in favor of other pri- Individual retirement ac- a traditional 401(k). You
orities, Hall says. Instead, counts are easy to open must offer a 3% match or a
make it as important as and available to virtually blanket 2% contribution to
paying your mortgage or anyone. You can contrib- all employees. You can de-
running your business. ute up to $6,000 in 2022 duct contributions made
This won’t come naturally (up to $7,000 if you’re 50 to your account and those
to most entrepreneurs, who or older). The main differ- made on your employees’
are often hyper-focused ence between traditional behalf.
on immediate needs and and Roth IRAs is whether GET INPUT FROM A PROFES-
tend to plan in three- to you want tax savings now SIONAL
five-year increments. or later. Traditional IRAs use Sure, you can try to de-
“It’s hard as an entrepre- pre-tax income, but you code which retirement
neur and small-business pay taxes when the money plan is best for your busi-
owner to think 20-plus years comes out. With Roths, it’s ness. Or you can work with
out,” says Mary Bell Carlson the other way around. a certified financial planner
, owner of Carlson Consult- SOLO 401(K): Available to or registered investment
ing LLC. “I’m often figuring business owners with no full- advisor to determine the
out what I need to do to- time employees (excep- best path. Doing the latter
day for immediate cash tion made for a spouse). can give you confidence
and long-term profitability.” The contribution limit is up in your strategy, help you
But Carlson, a financial to $61,000 for 2022, though avoid any costly penal-
counselor and certified fi- that’s broken into two ties and ensure you don’t
nancial planner, makes a parts, each with limits. Simi- leave any money on the
point to invest where she lar to an employer-spon- table.q