Retirement planning appears to have altered little throughout the years. You work, save, and then retire. While the mechanics remain the same, today’s savers face more problems than past generations.
To begin with, life expectancy is increasing, which means you will need your money to survive longer – maybe into your 90s. Bond rates are also significantly lower than previously, implying that you can not buy a few fixed-income products and get a double-digit return. Then there is the public health problem caused by the coronavirus epidemic.
This is exacerbated by the fact that more employers are shifting away from defined benefit pensions — which guarantee you a specific amount of money in your golden years — and toward defined contribution plans, which are more vulnerable to market fluctuations. Considering this, it may be wise to get professional help with Brunswick accounting and tax services.
Choose a traditional retirement strategy.
In addition to using your small business to fund your retirement, traditional options such as IRAs and 401(k)s exist as supplemental sources of retirement income rather than selling your small business.
Establish a simple IRA.
The SIMPLE IRA, or savings incentive match plan for employees, is one retirement plan offered to small firms. Employees can defer up to $14,000 of their pretax salaries in 2022 (increasing to $15,500 in 2023). Those aged 50 and over can postpone up to $17,000 by making a $3,000 catch-up payment. The catch-up contribution increases to $3,500 in 2023, bringing the total amount that persons 50 and older can defer to $19,000. On the other hand, employees who enroll in other employer-sponsored plans are limited to a total contribution of $20,500 (increasing to $22,500 in 2023).
Employers can match up to 3% of employee contributions to a SIMPLE IRA. On the other hand, employers can contribute 2% of each qualifying employee’s salary up to $305,000 in 2022 (increasing to $330,000 in 2023). Contributions from employers are tax deductible.
Set up a SEP IRA
SEPs are a type of individual retirement account (IRA) that small company owners and their employees can contribute to. It allows workers to make pretax contributions of up to 25% of their income or $61,000 (increasing to $66,000 in 2023), whichever is less, beginning in 2022.
A SIMPLE plan, like a SEP plan, allows small company owners to make tax-deductible contributions on behalf of qualifying employees, and employees do not pay taxes on the amounts contributed on their behalf until they draw distributions from the plan when they retire.