Has the COVID-19 Pandemic Affected Business Owners and Retirement Readiness?
COVID-19 has affected the American economy across a number of sectors and business owners nationwide are feeling the effects. Last month, TD Wealth released the results of a survey conducted in July among 1,296 business owners and individuals in two groups: high-net-worth business owners and individuals with investable assets of more than $500,000, and mass affluent business owners and individuals with investable assets between $100,000 and $499,000. The survey was about the pandemic’s impact on revenue and how or if that affected their retirement planning.
- The majority of respondents in both groups (67% and 73% respectively) said they were concerned about achieving their financial goals due to economic or political uncertainly.
- Among all business owners surveyed:
- Eighty-seven percent said their revenue had been affected by the pandemic,
- Forty-seven percent said they reduced their operations,
- Twenty-five percent experienced temporary or permanent closures.
However, 85% of respondents said they had not altered their retirement planning in spite of the pandemic’s negative economic effects on their businesses. Further, it appears they feel retirement-ready:
- Of those with a long-term investment plan, 94% said they were somewhat confident of achieving their financial goals.
- Among the high-net-worth respondents, 94% expressed confidence about their financial plan generating the income they would need in retirement.
- In the mass affluent group, 82% said they were somewhat confident about having the retirement income they’d need from their financial plans.
The TD Wealth survey also showed that together, retirement savings and investment portfolios comprised more than half of the retirement income across all survey respondents.
Get Retirement Ready with Self-Directed Retirement Plans
Savvy business owners already know a lot about running their businesses and are already comfortable making decisions that affect their operations every day. They could be building a diverse retirement portfolio with a range of alternative assets they also know a lot about—and make their own investment decisions regarding those assets—with a self-directed retirement plan.
Business owners may open several types of self-directed retirement plans based on their business situations, with all having the same benefits as their traditional counterparts but with added advantages—the ability to include nontraditional investments they already know and understand, and create a hedge against stock market volatility.
SEP IRA: SEP stands for Simplified Employee Pension plan; it’s an easy, flexible, option if you are self-employed, or a partner or owner of a corporation with 25 or fewer employees.
SIMPLE IRA: For larger companies of up to 100 employees, the Savings Incentive Match Plan for Employees enables employers to make contributions towards their retirement as well as their employees’ retirement.
Solo 401k: The individual/solo 401(k) is for sole proprietors who employ only themselves, their spouse, or partners. It has deduction and contribution benefits similar to a regular 401(k).
At Next Generation, we offer free education to help individuals make informed decisions about which type of self-directed retirement plan to open—including Traditional and Roth IRAs as well as health savings accounts (HSAs) and education savings accounts (ESAs). We always recommend you speak to a trusted financial or tax advisor who knows your specific financial situation to determine if, as a business owner, a SEP IRA, SIMPLE IRA, or Solo(k) will be the plan to help you meet your financial goals.
Once you decide which type of account to open, we make it easy with our starter kits and detailed instructions for funding a new account. As a self-directed investor the rest is up to you—selecting and researching the alternative assets you wish to include, conducting your full due diligence on each investment, and then providing Next Generation with instructions to execute the transaction.
If you are interested in learning more about self-direction as a retirement strategy, please sign up for a complimentary educational session with one of our representatives. Alternatively, you may contact our team directly via phone at 1.888.857.8058 or email NewAccounts@NextGenerationTrust.com.
Suddenly Become Self-Employed? We’ve Got a Retirement Plan for You.
Has your furlough become permanent or have you decided not to return to your place of work due to the COVID-19 pandemic? Is it time to turn a long-time interest into a business? If so, you are among the many older Americans who have recently joined the ranks of the self-employed, or are now semi-retired and working a nontraditional job. If that’s you, putting a tax-advantaged retirement plan in place is a smart step along your entrepreneurship and/or nearing-retirement journey.
Deciding how to approach your new employment situation and retirement strategy depends on certain factors. Perhaps you already have an established IRA you’ve been contributing to over the course of your career, with ample savings there and Social Security benefits on the horizon—but you like the idea of continuing to work in some capacity. Or maybe you had an employer-sponsored retirement plan but have separated service from that employer—in which case, you can roll those funds over into a new retirement plan.
With the sudden change in status from W-2 employee to independent contractor or business owner, you may not be aware of the self-employment taxes that come along with this new phase of your working life. You can continue to beef up your nest egg with several different retirement plans that also provide shelter from those taxes—and can all be self-directed.
Three ways for the self-employed to save for retirement
While you may continue to contribute to an existing Traditional or Roth IRA, there are additional options for the self-employed to consider, each with distinct tax advantages: a SEP IRA, SIMPLE IRA, or a solo 401(k). Plus, if you open a self-directed retirement plan, you can include many alternative assets and build diversity into your retirement portfolio through the nontraditional investments these plans allow—like real estate, private equity, lending, hedge funds and partnerships.
A solo 401(k) is for individuals operating an owner-only business (a spouse may also participate) and can replace your employer-sponsored 401(k) plan. Note that employee elective deferrals must be made by December 31; the employer contribution can be made upon calculating and finalizing the net income when doing the tax returns (March or April of the following year).
Qualifying for each type of plan depends on whether you are entirely self-employed or also still working for a company with a retirement plan (to which you may still contribute). These plans not only help individuals maximize their retirement savings—they are tax-saving tools as well, with different contribution strategies for each type of plan and according to your specific financial situation. Therefore, we recommend you review and discuss these with your trusted advisor to maximize your tax-saving opportunities.
If you have any questions about the types of alternative assets allowed in a self-directed SEP IRA, SIMPLE IRA or solo(k), or how the transaction process works with a self-directed retirement plan administrator, schedule a complimentary education session with a Next Generation representative. Alternatively, we’re also available to answer your questions via phone at 888.857.8058 or by email at NewAccounts@NextGenerationTrust.com.
Millennial Business Owners are Fans of Retirement Plans
Here’s something that may surprise you: younger business owners of the millennial generation are putting their employees’ retirement on their radar more so than their older counterparts (Generation X and baby boomers). According to a Nationwide survey, millennials are more aware of the importance of a workplace retirement plan and are nearly twice as likely as the average business owner to say they will offer retirement benefits to their employees in the future (69 percent vs. 36 percent).
Having grown up during the Great Recession, this generation has seen firsthand the importance of planning ahead financially. In addition to their own spending, money management, and retirement savings, they are thinking of their employees’ financial futures as well. The survey revealed that:
- Fifty-seven percent of millennial business owners think it’s their responsibility to help their workers save for retirement, compared to 44 percent of Gen X and 31 percent of baby boomer bosses.
- Fifty-one percent of millennials said a retirement plan is a good recruiting tool in a tight job market, to help attract and retain talent.
- Thirty-two percent of millennial bosses are increasing retirement contributions which is nearly double the overall figure (18% of all business owners).
Self-directed retirement plans for employees and employers
A SIMPLE IRA retirement plan can be established by employers, including self-employed individuals (sole proprietorships and partnerships) for the benefit of their employees. Eligible employees can contribute part of their pretax compensation to the plan. For individuals who are savvy about nontraditional investments, they can include those in their self-directed SIMPLE IRA. As you know, self-directed IRAs allow investors to include a wide range of non-publicly traded alternative assets, such as real estate, precious metals, lending and private equity.
If you are a business owner and would like to offer a SIMPLE IRA to your employees, or open a SEP IRA for yourself—or as an individual, you wish to open a self-directed IRA and build a more diverse retirement portfolio—Next Generation’s team can help you get started. Contact us at NewAccounts@NextGenerationTrust.com or 1.888.857.8058 today!