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Make Your Money Work for You!

Owning a business comes with a separate set of responsibilities. More specifically, being a business owner who is a woman can come with a series of issues alone! People don’t want to respect you. They think less of you than they do your male counterparts; all because of some preconceived misunderstanding about the power that we hold.

Take, for instance, the gender pay gap. This has been a problem for YEARS! In 2019 the Census Bureau estimated that women earned about 82 cents for every dollar a man was paid. Black women earned 62 cents and Hispanic women earned only 54 cents. Crazy, right?! I was recently featured in an article on Bankrate (read it here, if you haven’t done so already). There, I gave my personal story about how I took specific steps to increasing my pay when I was managing a salon in the past.

The saying goes “the more money you make, the more money you spend!

While you’re working to help shatter the theoretical glass ceiling, don’t forget about the years to come - retirement. As a business owner, you’re always thinking of what you need to do now. If you do that for too long, and don’t consider your future, you’ll look up and realized you’re not financially prepared for it! You can’t forget about the future – yours and that of your business.

So, it may be a good idea to consider your personal retirement plan and business succession strategy.

Let’s start by looking at a few retirement plan possibilities:

  1. Solo 401(k) This plan, which is also known as an Owner-only 401(k), is available to self-employed individuals and business owners with no full-time employees other than themselves or a spouse. A Solo 401(k) offers many of the same advantages of a traditional 401(k): a range of investment options, tax-deductible contributions, and the opportunity for tax-deferred earnings growth. You may even be able to choose a Roth option, which allows you to make after-tax contributions that can grow tax-free. Your Solo 401(k) contributions consist of two parts: salary deferral and profit sharing. In 2020, you can defer up to $19,500 of income, or $26,000 if you’re 50 or older. Your profit-sharing contribution is based on your earnings. The sum of your salary deferral and profit sharing can’t exceed $57,000 (or $63,500 if you’re 50 or older). If your spouse is employed by your business, you each can contribute the maximum amount allowed.

  2. SEP IRAIf you have just a few employees or are self-employed with no employees, you may want to think about a SEP IRA. You’ll fund the plan with tax-deductible contributions, and you must cover all eligible employees. (Employees themselves cannot contribute.) You can generally contribute up to 25% of compensation, up to $57,000 annually. And you can fund your SEP IRA with virtually any type of investment.

  3. Solo defined benefit plan – Not many businesses still offer pension plans, also known as defined benefit plans, but you can set one up for yourself if you’re self-employed or own your own business. This plan has high contribution limits, which are determined by an actuarial calculation, and your contributions are typically tax-deductible.

A financial professional can help you choose the appropriate retirement plan [The network’s Financial Coach Kris can help with this]. But you’ll still need to think about succession planning. Of course, you can always sell your business outright at any time you like. Or you could leave your business to your children in your will, but if you give it to them gradually during your lifetime, you can become more confident they’ll be able to manage the business on their own.

Another alternative might be to transfer the business with a buy-sell agreement, which allows you to determine when, to whom, and at what price you can sell it. Because you can establish the purchase price as your business’s taxable value, a buy-sell agreement is useful in estate planning. If you want to keep the business in your family, you might want to consider funding the buy-sell agreement with life insurance, so family members can use the death benefit proceeds to buy your ownership stake.

In any case, given the complexities and tax issues involved with succession planning, you’ll need to consult with your legal and tax advisors when creating a strategy. But don’t wait too long. You can’t predict the future, but by planning ahead, you can help achieve the outcomes you desire.


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