Retirement Tax Planning Strategies for Entrepreneurs

Friday, February 13, 2015
Retirement Tax Planning Strategies for Entrepreneurs

Entrepreneurs need to pay special attention to their retirement planning. When budgets are tight and you're working hard to grow your business, it can be tough to imagine parting with a few extra dollars to save for retirement. But with some careful planning now, you can put yourself in a good position later for tax benefits and a reasonable retirement fund — even without an employer matching program.

Talk to your accountant about the strategies below to reduce your taxes, boost your retirement savings, and build assets that could be tax-free when you retire.

1. Deduct from your earnings to save for retirement.

You can defer taxes by funneling some of your income into a retirement plan — including IRAs, HSAs, and other benefit plans. Your tax accountant will be able to advise you on your options. Many of these options allow you to take a federal tax deduction against income (with certain income restrictions). Pay close attention to contribution limits for 2015 — and if you're over 55, you can benefit from an additional catch-up limit to add some extra padding to your retirement fund.

2. Build flexibility into your retirement plan with a Roth IRA

It's generally a good practice to contribute to a Roth IRA plan in addition to your other accounts. This strategy can protect you against the potential for future increases to federal tax rates for retirees. Plus, you have the option to benefit from your Roth IRA contributions before you reach retirement age. If your account has been funded for more than five years, you can use your contributions toward a down payment on a home, college tuition, and in the case of certain emergencies. Setting yourself up for this kind of protection can make a huge difference in your cash flow if the need arises.

3. Grow your Health Savings Account to enjoy additional tax-free benefits

The HSA is growing in popularity among small business owners, mainly because of increases to health insurance premiums. The important thing to understand about this type of account is that you're not required to use the funds — which means, if you allow your HSA account to grow over the years without making withdrawals, you can benefit from incredible tax-free growth. Plus, the contributions you make are tax-deductible which increases your cash flow in the short-term. By coupling your HSA with a high-deductible insurance plan, you can reduce the costs associated with health care premiums while saving for any medical expenses and growing those contributions.

Make sure to talk to your accountant about the best way to plan for retirement as a small business owner — and don't wait. Imagine all the extra income you could enjoy in your retirement years if you start planning and saving now.

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Jo Ann Koontz

[email protected] 941-225-2615