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How Self-Employed Business Owners Can Improve Their Retirement Planning

Jan. 30, 2015
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By Dmitriy Fomichenko

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2015 is underway and many of us are now working on our New Year’s resolutions. If you’re a self-employed business owner, one of your objectives should be to improve your retirement planning because it can determine your financial future. Here are a few things to keep in mind as you try to reach that goal.

Decide on the right plan

If you don’t have a self-employed retirement plan yet, look for a provider and set up an account soon. The earlier you contribute to an IRA or a Solo 401(k), the more funds that can be accumulated. Investment returns often grow exponentially, so a small contribution right now can make a big difference later down the road.

Many people are unaware of the availability of self-directed retirement plans, such as an IRA LLC and Solo 401(k). With a self-directed IRA LLC, the plan is structured to give holders total control of their investments, while their custodian takes a passive role. A Solo 401(k) plan, on the other hand, eliminates the custodian role and lets the plan holder take the driver’s seat. Both of these structures allow plan holders to tailor their asset allocation to their needs while lowering costs and fees.

If you already have a self-employed retirement plan, decide if your retirement portfolio is earning enough return. The idea of retirement planning is not only about saving enough; it’s also about investing wisely so that the fund keeps growing and becomes sustainable during your retirement.

Although earning is important, also take a look at the expenses. Understand all the fees and costs associated with maintaining your account and make sure they aren’t eating away at your earnings.

If you are happy with what you see after reviewing your plan, congratulations! If not, make a change in 2015.

Maximize your retirement plan benefits

Once you decide on the right retirement plan, be sure to make the most of it.

The quickest and most certain way to grow a retirement fund is to make contributions. For self-employed retirement plans such as IRA LLCs or Solo 401(k)s, contributing more can help increase the tax-free or tax-deferral benefits. It can also lower your or your business’ income tax.

In 2015, holders of Solo 401(k) plans can contribute up to $53,000 ($59,000 for those over 50 years old). This means plan holders can shelter a significant amount of money in a tax-deferred or tax-free (Roth) account.

Committing to improving your retirement planning in 2015 is a great New Year’s resolution. Hold yourself accountable and set up a better self-employed retirement portfolio. It’s never too early to plan for retirement, and now is a great time to start.