Donna Genie (YouTube) explains retirement planning for small business owners and recommends using a solo (single) 401(k) instead of only an IRA. She contrasts an IRA (limited to about $7,000/year currently) with a solo 401(k) which can accept much larger contributions ("over $26,000" annually plus an employer contribution up to 25% of wages). She highlights the loan provision (borrow up to half the 401(k) or $50,000, whichever's less, repayable over 60 months), advises consolidating retirement accounts into one plan, and suggests starting with the right plan early. The speaker notes tax credits may offset setup fees and recommends consulting an accountant or financial advisor.
Questions this video answers
"up to currently $7,000 a year"
"currently over $26,000"
"another 25% of your wages"
"no more than half of your 401k or $50,000, whichever's less"
"over the next 60 months"
Chapters
Retirement, ah, that's a great thing. But retirement is a really different thing than it used to be. Retirement now means not just calling it a day and sitting on the front porch in the rocking chair watching the cars go by, but retirement means a new flexibility and a new freedom to accomplish the things that you want to in your life, to see the world, to see people have a good time. So how do you go about saving for retirement when you're operating your own business? So many of us, including me, for a long time, take all that money and funnel it back into the business to try to grow it. But I'm here to tell you, you need to set a little aside for yourself. Your business will thrive and operate, but start small if you need to set aside that money before you grow and let it be growing alongside of you. Now, I'm often asked, what's the best retirement plan for somebody who owns their own business? Well, obviously there are some differences based on financial situations, but I can tell you that most of the business owners I see have the wrong plan. If we're looking at just strictly simplicity, you can go with an IRA in most cases. Again, I'm going to give some general advice. You need to have specific advice to apply to your particular situation. So please reach out to your accountant or your financial advisor to make sure you've got the right plan. But an IRA allows you to set aside up to currently $7,000 a year. Perhaps if you're over 50, you might be able to do a little more, but it has some pretty big limitations and won't let you invest a lot. Now, you may say, donna, I just don't have that much to invest at this point. But I'd like the opportunity to be able to take advantage of that if a great year comes along. So you need to be set up for the right plan to begin with. So the right plan means allowing you to defer as much as you possibly can and really maxing out your opportunity to put money into your retirement plan. When those events come along, you can't wait until after because a lot of cases that's too late to figure that out. So do yourself a favor and start out by setting up the right plan to begin with, even if it costs a little bit of money to do that. There are currently even credits throughout the IRS system and the tax code to allow you to recoup some of those fees that you may have to pay to set up the administration of the retirement plan. But I want to tell you the secret. The secret plan that most People don't know about even a lot of the financial advisors is a solo 401k or a single 401k. These go by some different names, but to put it in simple terms, it is a simplified version of a 401k for people who don't have employees who would qualify. So if you like a lot of small businesses, it might be you and your spouse who work in the business, but you don't have any other employees or maybe you just have part time employees. They don't need to be eligible to join in a plan. So you don't need a big fancy 401k plan that has a lot of fees. A solo 401 plan or single k allows you to put in a lot of money each year, currently over $26,000. You could put in in one year, depending on your age and depending on the year that we're talking about. You can also put in an employer contribution which is another 25% of your wages. So if we're comparing the $7,000 IRA to 20, 30, $40,000 going into your retirement plan on that great year, those are huge differences. The single K and solar K also has one really important part that so many people miss. Listen up. It has a loan provision. So back in the old days we used to have credit cards, home equity, lines of credit, all as our backup plan for cash if we needed it in our business in a hurry. Well, you could set up the plan so that you can access your 401k and loan money back to yourself. In a pinch, you can pay it back and put that money back into the 401k over the next 60 months after you borrow it. The terms are that you can borrow no more than half of your 401k or $50,000, whichever's less. So you can take your 401ks and your IRAs and roll them all into your own plan. I recommend you have them in one plan. Don't have an IRA 401k except all these different variations. Put them all together, make it easy to manage, but make sure that you have those loan provisions available and that if you have that right year or have a little spare cash and want to save on taxes, that you have every opportunity to do so. Now, if you've not heard of the single K or the solo K and you want more information, I've got a blog post about that. I'll put the link in the comments and feel free to reach out. I'd be happy to chat with you. Thank you. And have a great day and implement this plan.
