Wednesday, April 30, 2014
For small business owners, their business can become their lives. It can also become their retirement savings plan.
To ensure a successful transition from ownership to retirement, business owners should take these three steps:
- Develop a business succession strategy. After identifying an individual or business as a logical successor, owners should obtain a value for the business, develop a buy-sell agreement, and establish a mechanism to fund the future transition.
- Establish a qualified retirement plan. Contributions to qualified retirement plans like 401(k)s are tax deductible to the employer and are a good way to move cash flow out of the business in a tax-efficient way. They are also a good way to attract employees.
- Consider a nonqualified retirement plan. Accumulate additional dollars for retirement beyond a qualified plan’s contribution limits. The most common types of nonqualified plans are Supplemental Executive Retirement Plans, executive bonus plans, and deferral plans.
See Northwestern MutualVoice Team, Don’t Bank on Your Business to Fund Retirement, Forbes, Apr. 23, 2014.