401K, SEP or Solo 401K? What Business Owners Need to Know

#retirement #retirementplanning #podcast 

On the #Built4ProfitPodcast powered by IQ4Profit, Elizabeth interviews Sha to bust the myth that a business (or even your kids) can serve as your retirement plan. They discuss how many entrepreneurs leave corporate benefits behind, fund businesses with 401K loans/ROBS or debt, and then overlook retirement planning while concentrating wealth in one asset: the business. 

Resources include a consult with Strategies for Wealth:

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• Find Sha on LinkedIn: /shagrondin
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Chapters:
00:00 Your Business Isn’t Retirement
00:59 Why Owners Delay Planning
02:09 Diversify Beyond the Business
04:33 Retirement Plan Options Overview
07:46 Protect Yourself and Tax Benefits
09:44 Getting Help and Vetted Resources

Transcript

SPEAKER_00 0:00

Welcome to the Built for Profit podcast, powered by IQ for profit. Because when you know better, you can do better. I don't know who's more excited about this episode, me or Shay. It's me. Because we're talking about something that every small business owner needs to be taking advantage of. And honestly, it's just something that unless we know someone in the financial industry, I'm saying we because I sit on this side of the table. Shay's background is in financial planning. She's the wealth of knowledge. I am the average successful business owner who has a lot of questions and wants to be responsible about my future. First of all, let's start off and just bust a myth. Okay. Myth busters. Can my kids be my retirement plan? Usually statistically, no, not gonna work that way either. I know I had a lot. So I can just say we're gonna have a backup plan to that. Well, I guess we'll be responsible business owners then and listen to what Shay has to say. There's so much opportunity in this conversation. And this should be like a warning. This may disturb you. We're gonna talk about real numbers and real scenarios. Yes, and that's what we want with this episode. But so many people who come into franchising entrepreneurship in general, they're leaving a corporate structure to where they were given retirement, matching all these different things, taking a risk on themselves, believing in themselves, jumping in, starting the business, pouring all of their money into it. And this aspect of retirement sometimes gets overlooked for way too long. So this is why we're bringing this to you today. This is near and dear to both of our hearts. We know that you gotta be setting your future self up for success. And I got some questions for you, Shay. Let's do it. And a lot of times what we see in these meetings, I've been in thousands of these meetings, Elizabeth. And there's a lot of the same consistency in common denominators. And one is typically they're funding the business in some way. They're either borrowing money from their 401k Rob situation or something like this, or taking a loan out, SBA. So there's already some financial debt around that that is debt for your future self as well. I see. So there's already some of that mindset going on when they're coming, they're rolling up into this business. Yes, yes. And so you know what the last thing they're thinking of is when we were about myself 20 years from now, 30 years from now. So we see this a lot that business owners will not do any kind of retirement planning. Or this is the other thing I see a lot, that they invest all their money into their business. Now, can we just have a moment? As a financial advisor, I sat down with you and said, you know what, why don't we invest all of your money into one stock? I would immediately say, I need to find a new financial advisor. But that's what business owners do. And they even have the mindset of, yes, I can get more return. I can do all these things. There is risk involved. So we want to diversify risk and opportunity and tax rate. There's a lot of things that go with it. We just want to keep this high level. Yep. And we want to make sure that the takeaway today is there's opportunity and time is money's friend or enemy, and we want you to make it your friend. I have not sat down with a client yet who's gone, you know what, Shay? I don't know what I was doing. I must have been drinking. I just started saving way too early for retirement. Right. Not had that meeting yet. If you are that person, please directly message me so I can actually take that off my cue. I think it's fair to say that most people don't start saving for retirement. It's a I'll start saving when type conversation in their head. So how do you help walk them through the, I know that I should be doing this, but to make it a priority right now when things already feel tight? Like I have enough money to pay the bills, but not just a bunch left over. I think a lot of it is fear that they may need it back. And they feel like it's locked up in a dungeon somewhere. So if I need to expand, I need money for payroll, there's something in between, there's a gap I need to fill. I will not have the ability to access that. Or I'll wait till X, Y, and Z happen to do it. That's what I hear a lot. There are different strategies that you can invest and put money aside that you can still leverage, right? Borrow against, leverage line of credit, or even access with no penalty. It just depends on what you're in. Yeah. It's not a one or all. I mean, there's a lot of things out there. Yeah. I'll use it a bad example that I go to Sherwin Williams, not plugging Sherwin Williams, but I get overwhelmed there. Look at the help and go, can you can you help me? A lot of people feel that way about investing or picking stocks out or mutual funds, where I feel really good in that store. Go seek someone who knows what all the colors are and all the tools are that is best suited for you. Yeah. And that's what I would want to be told as a business owner, because I honestly have so many things to be worrying about with running my business and just gosh, that's a big list. So I would love to have my job be allocate a certain amount of money, let you handle the rest. And knowing where to put it based on, do we need to have it come back, right? Is it tied up for this long or this long? And also, where does it need to be held inside of a business investment tool personally? Where's the liability and the risk? I don't want to overwhelm, but there is value in seeking expertise in this. Yeah. Most people coming from a job, they typically had a 401k. I mean, that's what most people have for a company. So if I'm coming in as a business owner and now I know I do want to set something up, I know that I should, and I'm ready to take action on a high level. What should I consider or what should I ask about? You know, on a high level, right? There's products out there that you're probably not familiar with. There's a solo 401k, which is probably very underutilized. And that is a great, great vehicle for uh two people spouse, husband, or wife, team, a company. It's tiny and tight, right? A simple IRA, which is great for small businesses. And everyone's heard of it before when K that doesn't always make sense for a small business because it has higher fees. There's usually a volume or amount of employees that make those make sense. And a simplified employee pension, we've all heard of those steps. They have different vehicles and just making you aware of them. A Roth IRA, everyone's heard of that. The difference of the vehicles is the amount. Is it deferred? Is the tax treatment? So I don't want to be like this one silver bullet because financial planning is so personal. It is so personal. People don't realize that. And you know, how much you need in retirement, the timeline of that stuff. You know, some people may want to put $100 a month, right? It's more important to start the habit, flexing that muscle than it is the amount. Okay, period. Yeah. I mean, that's great. Write that down. It doesn't have to be a large amount. And depending where your business is and that cycle will determine probably the best vehicle for you. I like that. And I think that people get clarity or comfort, I guess maybe is a better word, knowing they can scale it up or pull it back if they need to. You know, great season, maybe up what you're investing. And then, you know, things are tighter for a month or two, slower season, you can reel it back in so you're not locked in. And that's what I hear a lot. And really doing reality talk. 80% of small businesses that are listed to sell don't sell. And then we won't even get into the math of how many times has someone heard about this business or try to sell it to me. They said it was worth this, and it by the time you got down, it's worth that. Yeah. And we hear the reasons why. Well, there's a lot of moving parts to that. And I'm not an expert on the valuations of businesses. I'm just saying what I've seen. Or the other wonderful retirement plan, going back to what you said about kids, Elizabeth, trying to make sure I don't give away a client story. Very successful company, a couple of kids. And he said, These kids are gonna buy me out over time. You've ever heard that, right? Okay, it's great. It's family demand. Oh god, right? They're gonna take care of dad. They're gonna buy us out over time. Uh, very successful business, been around a long time. Great family. And my advice to him during that process was not a good idea. Have them take a loan out, right? Secure the business, get your check. You don't know what's gonna happen. Had issues, boys are fighting. I'm nervous, got a lawsuit because of something bad. One did, business not so good. Guess what? That man thanked me a lot. Gave me a gift. He did follow your advice. Yes. Because sometimes with financial stuff, we make emotional decisions. And so the whole idea of having someone else that comes in and says, This is very emotional for you. These are some options that are best for you. I have your back. Like I'm toting advisors. That's what they're supposed to do is a true fiduciary that comes in and says, I got you. What do you need? Because we're making decisions. And usually 80% of a business owner's net worth is tied to their business. That's what they're putting their money in. And it's like a mortgage or a house. How do you extract that, right? It's a really important thing strategies. I can hear your passion on this. And I know obviously, because it was your field of work for so long, but your passion still really comes through when you're talking about it. So what I'm taking away, and what every business owner should really be taking away, is you don't have to start huge, but you do have to start. Yes. And there are different avenues, could be a set, could be a simple, could be a solo 401k, but talk to someone about what that right thing is for you because it does depend on probably your entity type, your financial situation, your family situation, all of that tied in. And if your business is helping fund, which it is, think about it, your business is making money that you're diversifying in other things, mitigating and moving risk around. The other things we're not getting into that, but if you're not there to make that money, you are unable to work, what is the value to your partners or your significant other or your family? I mean, there's just a lot of things that go into planning. Whereas when you work for a company, you automatically may have had options to have disability insurance, health insurance, three times your paycheck life insurance or something. These are things that your business can take care of you about. And you just be mindful about it. Put the oxygen mask on yourself. And one of the exciting things that I think for business owners to be able to hear is like that match aspect, but that's like them benefiting them. You get to be in charge of what that match is. We want to take care of our employees, but say it was you and a spouse running this, you can maximize that as much as possible. You are deducting that. I mean, we're talking about tax benefits, we're talking about personal benefits, all saving for your future self. And sometimes that gets messed when entrepreneurs are thinking about what's really the benefit for me having to set this all up or fit the bill. And leveraging, and like I said, I'm you know, always disclosure as an advisor, but giving financial advice is just education because it's really unique to you. It's being aware of other concepts. And when you sit down and you're looking at how to get out of business, how to leverage it, benefits, there's a lot of moving parts to it. And you don't want to be overwhelmed, but you don't want to miss opportunity. We want to minimize risk and taxes. That's the power of a business advisor, someone who's used to work with entrepreneurs. And that's a really important part when you're going to interview or discuss that with an advisor. Yeah. And that's why we aligned with advisors that are business savvy. So if we were going to wrap this up, when someone is listening and they fall into this category and they say, That's me. I don't have anything set up. I know I should. I do want to. Out of my lane, though. I don't even know what my first step is. Where can we be that resource for them to start? Absolutely. Where we have an alignment with strategies for wealth. And if you click in the show notes, you can have a 30-minute consult with them and ask questions specific to you. We do this because half of the barrier of getting something done is figuring out who. As an advisor, when I go, we need this, me, oh, by cell, I will, these different things. The next thing is who? I don't have time to go figure it out. And I don't want to learn the bad person, right? It's like when you go and get a referral, I want the painter that's good down the street that you're working with. I don't want to have time and money mistakes on my stuff. Yes. And it's overwhelming sometimes stepping into this. I'm thinking of even when, you know, went to the doctor for my kids and they're like, they need tubes. You get all this information as a parent. And I know I was like, okay, can you give me a list of the most trusted tube doctors? I will set it up. I will do everything, but just give me the list. And that's really the attitude that we took to this as well when coming up with these, right? I mean, all the resources I know are vetted. These are things we would put in front of our family because you don't want to make the costly time of learning mistakes figuring this out. You don't want to go Google your heart surgeon or the person that's going to help you land 30 years from now significantly or send your kids to college or whatever it is you have going on. These are big decisions. Yep. And they're things that people procrastinate because it's the barrier of getting it done and we've taken that away. That's right. And you had one of the best people vetting these resources. Obviously, this isn't something that we do as a disclaimer now, but we do take so much joy in vetting them and providing these resources to the can-do kids. Thanks so much for sharing that knowledge. For coming out of retirement to share it. Take action. Start with a hundred dollars. Start with something. It's in the back of your mind. It's one of those things that you go, I should have, I should have, whatever. Stop it. Just make it happen. No one starts doing the right thing and regrets it. That's right. So when you know better, you can do better. See you in the next episode. And you want more information on the resources that we have, you can go to iqforprofit.com and see the resources we have there. Yeah. We'll link them in the show notes for you too. One of the heaviest loads business owners carry are taxes and expenses. They can make or break your bottom line. Yes, we see it every day. And that is why we have partnered with Lightening the Load, expert tax strategists and CPAs. And they help you get a deep dive on those numbers, uncover different strategies, and keep more of what you've actually earned. They don't just file returns, they lighten the load for you with confidence. And that way you can grow and scale your business. So check out, it's in the show notes below. We got a 30 minute free consultation for you with Lightening the Load, and you're talking to a CPA. Unbelievable. Click on the link below and take advantage of it. We'll see you in the next episode.