Small-Business Owners: Are You Planning Smartly for Business Continuity When you Retire?
Owning your own business is filled with rewards—and its share of stress and worries. For those who are running profitable businesses, there are as many things to consider in order to ensure a smooth hand-off of the business when it’s time to retire.
However, a study by MassMutual reveals that almost 40 percent of business owners don’t have a retirement income strategy, assuming that proceeds from selling their business will feather their retirement nests. This might not be the case, so small-business owners are wise to do some planning in advance.
Before you sit back and relax in your retirement years, here are some steps to take while you’re in business owner mode to protect you and your heirs.
Have your business appraised
Valuation is an important first step in determining what you might get for your company when you sell it. Hire an expert appraiser to ascertain what your business is worth; this information will also be important for you and your financial adviser(s) for estate and succession planning. Some online tools, such as the one from BizEquity, can give you an approximation as a planning starting point.
Plan for your business’ future after you leave
Unfortunately, retirement isn’t the only thing that can cause a change in business ownership; disability or death may also intervene. Planning for these scenarios is vital to the long-term health of the company you’ve worked so hard to build up. Who will step into leadership roles? How will that look? Two ways to do this are with buy-sell agreements and succession plans.
The MassMutual study showed that only 44 percent of business owners have buy-sell agreements that lay out contingency plans for retirement, disability, divorce, death, or personal bankruptcy (the issues that would cause business disruption for a small business). This legally binding contract is among company owners or between the owners and the company, and ensures business continuity if ownership changes. Buy-sell agreements can also be used for estate tax planning so be sure to consult your financial advisers about this important tool.
Having adequate insurance is also important to protect heirs during a buyout. The MassMutual Survey also found that only 52 percent of existing buy-sell agreements are funded with life insurance and only 5 percent are funded for a disability buyout.
This is all about transitioning ownership of the company (to your heirs or other internal stakeholders) during your lifetime or in the event of your death. It’s as much a human resource issue as it is a long-term financial strategy. Upon your death, your succession plan will make it easier for your family when your ownership intentions are clearly spelled out.
Build a robust retirement nest egg through self-direction
If you’re not only savvy about your area of enterprise but savvy about alternative asset investing as well, a self-directed SEP IRA can be a great way for you (and your employees) to build up retirement capital. All types of retirement plans may be self-directed (Traditional and Roth IRAs and even HSAs may be self-directed); you may also choose to offer a self-directed SIMPLE IRA to your employees, depending on your business goals.
These self-directed accounts allow individuals to include a broad array of nontraditional investments, such as real estate, precious metals, hedge funds, commodities and so much more—assets they already know and understand, and might be investing in outside of an existing IRA.
As part of your long-term business planning, you recommend you consult your tax or other financial adviser about setting up these retirement plans and determining if they’re right for you. At Next Generation Trust Services, we’re available to answer questions about the types of investments that may be included and help you get set up with ease. We have plenty of online tools available on our website, including a SEP IRA starter kit.
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Contact the helpful professionals at Next Generation Trust Services at (888) 857-8058 or Info@NextGenerationTrust.com today!
Love Your Work Lifestyle? Make Sure You Show Your Retirement Plan Some Love as Well.
Americans are taking the term “work/life balance” to heart and turning it on its head by freelancing or becoming their own boss. According to a new, landmark survey conducted by the independent research firm Edelman Berland and commissioned by Freelancers Union and Elance-oDesk, more than 53 million Americans (or 34 percent of the workforce) are doing freelance work.
This flexible work lifestyle has many tangible benefits such as: more control over where you work, when you work and the type of work that you do. However, being part of a contingent workforce means that the responsibility of building retirement savings is a contingency plan for which everyone needs to plan and take on a very active role.
Whether you are starting out in your career, self-employed or doing freelance work to bridge yourself to retirement, here are some solid ways to plan for your retirement.
- For freelancers and the self-employed: A SEP IRA or Simplified Employee Pension plan is perfect. A SEP plan provides employers with a simplified method to make contributions toward their employees’ retirement and, if self-employed, their own retirement. Contributions are made directly to an Individual Retirement Account or Annuity (IRA) set up for each employee (a SEP-IRA).
- For the self-employed or business owner: A SIMPLE IRA plan or Savings Incentive Match Plan for Employees allows employees and employers to contribute to traditional IRAs set up for employees. It is ideally suited as a start-up retirement savings plan for small employers not currently sponsoring a retirement plan.
Building retirement savings needs to be part of any work/life balance plan; no matter how flexible life is now, the future is unknown.
Alternative investment options—
A Valentine for self-directed retirement plans
For financially savvy investors who understand alternative investment options, a self-directed IRA can be a good way to build retirement wealth more aggressively. A self-directed retirement plan allows individuals to invest in nontraditional assets not allowed within typical retirement plans; these alternative assets include real estate, mortgages, unsecured loans, private hedge funds, precious metals, limited partnerships, commercial paper and notes and more to bolster their retirement efforts. Individuals who already know and understand these types of investment vehicles, and who want to make their own investment decisions, find a lot to love about self-direction.
At Next Generation, our professionals are available to answer questions about self-directed retirement plans and our transaction specialists ensure you are investing within IRS guidelines. Since we do not give investment advice, we strongly recommend you consult your trusted financial advisors about your investments and any tax implications they have for your unique situation.
For more information about self-directed SEP IRAs, SIMPLE IRAs or other types of self-directed retirement plans, contact Next Generation at (888) 857-8058 or Info@NextGenerationTrust.com, or click here to read through our Starter Kits.
SIMPLE IRAs Can be Self-Directed
What is a SIMPLE IRA?
SIMPLE stands for savings incentive match plan for employees. It allows employers and employees to make contributions to a Traditional IRA set up for those employees. It’s applicable to self-employed individuals as well (certain limits apply). For employers who do not yet sponsor a retirement savings plan at their workplace, a SIMPLE IRA is a great way to start. These plans are for companies with fewer than 100 employees.
As with SEP IRAs (another type of employer-sponsored retirement plan), there must be a SIMPLE IRA set up for each eligible employee. A SIMPLE IRA is relatively easy to set up and run, and employees may contribute to their accounts through payroll deductions, thereby building up retirement savings by deferring a part of their salaries. The contributions are tax-deferred.
Employers must also contribute to each eligible employee’s SIMPLE IRA in one of two ways: match participants’ contributions or contribute a fixed percentage of all eligible employees’ pay. Each employee owns and controls his/her SIMPLE IRA. You can read more about these retirement plans in the IRS website.
Self-Directed SIMPLE IRAs
For those employees and employers who know their way around alternative investments or who wish to make their own investment decisions, a self-directed SIMPLE IRA can help them control their futures. With a self-directed SIMPLE IRA, the account holder may choose to invest not only in stocks, bonds and mutual funds but in the broad array of alternative assets allowed through self-direction—real estate, precious metals, commodities, unsecured loans, and much more.
The maximum contribution allowed to SIMPLE IRAs is $12,000 in 2014 (this goes up to $12,500 in 2015); for employees over age 50, there is a catch-up contribution of an additional $2500 currently allowed (with an increase to $3,000 in 2015). As we head into the final weeks of the year, there’s still time to make those contributions and meet the annual limit (and build up those retirement savings).
If you’d like to open a self-directed SIMPLE IRA for you and your employees, Next Generation Trust Services can help. Our transaction specialists can answer your questions about the nontraditional investments allowed through self-direction and can guide you along the way.
Click here to find out more about SIMPLE IRAs
Click here to find out more about self-directed IRAs.
Contact us at (888) 857-8058 or Info@NextGenerationTrust.com to get started today.
2014 Pension Plan Limitations Announced by IRS
In short, elective deferrals to 401(k) plans remain the same as in 2013 ($17,500 plus $5500 “catch-up” contributions for people age 50 and over). Traditional and Roth IRA contribution caps are $5500 (plus $1000 for the 50-plus group). However, for these IRAs, the modified adjusted gross income limits for contribution deductibility have changed.
For business owners or self-employed individuals with SEP IRAs, the deduction for contributions goes up to $52,000 (an increase of $1,000 over last year).
These limits—such as contribution limits, salary deferral limits, and taxable wage bases—are important considerations as you discuss your retirement goals with your advisor or are determining how to include nontraditional assets in your self-directed retirement plan. All the income and expenses relating to the assets flow in and out of the self-directed retirement plan, which owns the assets within it. If you have any questions regarding self-directed plans of any kind, check our website (http://NextGenerationTrust.com) or contact us at Info@NextGeneraitonTrust.com or (888) 587-8058.
How To Set Up A Self Directed IRA
Looking to estabish a Self Directed IRA, Self Directed Retirement Plan, or Real Estate IRA? Next Generation Trust Services, a self directed IRA administrator based out of Northern New Jersey, presents the basic steps to filling out the application paperwork to get your self-directed retirement account open! Control Your Future, Today!
What is a SIMPLE IRA?
A SIMPLE IRA plan is a Savings Incentive Match Plan for Employees. Because this is a simplified plan, the administrative costs should be lower than for other, more complex plans. Under a SIMPLE IRA plan, employees and employers make contributions to traditional Individual Retirement Arrangements (IRAs) set up for employees (including self-employed individuals), subject to certain limits. It is ideally suited as a start-up retirement savings plan for small employers who do not currently sponsor a retirement plan.
- Easy to set up and run – usually just a phone call to a financial institution gets things started.
- Administrative costs are low.
- Employees can contribute, on a tax-deferred basis, through convenient payroll deductions.
- You can choose either to match the employee contributions of those who decide to participate or to contribute a fixed percentage of all eligible employees’ pay.
Under a SIMPLE IRA plan, you, the employer, make contributions to traditional IRAs (SIMPLE IRAs) set up for each of your eligible employees. In addition, this type of plan allows your employees to defer a part of their salaries into the plan for retirement. A SIMPLE IRA Plan is funded both by employer and employee contributions. Each employee is always 100% vested in (or, has ownership of) all money in his or her SIMPLE IRA.
How does a SIMPLE IRA plan work?
Elizabeth works for the Rockland Quarry Company, a small business with 50 employees. Rockland has decided to establish a SIMPLE IRA plan for its employees and will match its employees’ contributions dollar-for-dollar up to 3% of each employee’s salary. Under this option, if a Rockland employee does not contribute to his or her SIMPLE IRA, then that employee does not receive any matching employer contribution from Rockland.IRA
Elizabeth has a yearly salary of $50,000 and decides to contribute 5% of her salary to her SIMPLE IRA. Elizabeth’s yearly contribution is $2,500 (5% of $50,000). The Rockland matching contribution is $1,500 (3% of $50,000). Therefore, the total contribution to Elizabeth’s SIMPLE IRA that year is $4,000 (her $2,500 contribution plus the $1,500 contribution from Rockland). The financial institution partnering with Rockland on the SIMPLE IRA plan has several investment choices and Elizabeth is free to pick and choose which ones suit her best.
Austin works for the Skidmore Tire Company, a small business with 75 employees. Skidmore has decided to establish a SIMPLE IRA plan for all its employees and will make a 2% nonelective contribution for each of its employees. Under this option, even if a Skidmore employee does not contribute to his or her SIMPLE IRA, that employee would still receive an employer contribution to his or her SIMPLE IRA equal to 2% of salary.
Austin has a yearly salary of $40,000 and has decided that this year, he simply cannot make a contribution to his SIMPLE IRA. Even though Austin does not make a contribution this year, Skidmore must make a contribution of $800 (2% of $40,000). The financial institution partnering with Skidmore on the SIMPLE IRA plan has several investment choices and Austin has the same investment options as the other plan participants.