As an entrepreneur, it’s likely you will see times of financial wealth and growth and periods of less-than-desirable income. You may also have dreams of retiring early, traveling the world or starting new ventures over and over again. Every opportunity is possible with good financial management. The key, though, is creating a way to invest in your future now.
Multiple methods of retirement exist, though not all of them relate specifically well to entrepreneurs who don’t have employers to fund retirement accounts. Whether you are a small business owner or a startup investor, it’s critical to have a plan for your financial future. Consider these options that are typically a good fit for entrepreneurs.
Entrepreneurs may wish to focus on retirement solutions to plan for their future. To do that, consider these methods for putting money away for retirement.
A solo 401k could be a good opportunity for business owners who want some flexibility. For those who qualify for this type of retirement account, it is possible to contribute as much as $57,000 each year to it, and more if you are over the age of 50. The money is put into a fund with IRS-approved assets. This type of retirement vehicle is for those with self-employment income. Generally, this type of retirement account works as a traditional 401k. Contributions are made with pre-tax dollars. That means your investment goes in prior to you being levied any type of tax on the money, allowing you to put away more.
Simplified Employee Pension (SEP) IRA:
The simplified employee pension is a type of individual retirement account (IRA). Many sole proprietors favor this option because it is easy to open and use. Typically, there are account fees to pay, though they are lower than many types of investment strategies. Another benefit to this type of account is that the rules for contributing to it are simple and straightforward. Individuals can invest as much as 25 percent of their net income into the account. There is a cap on the among you can invest each year, and that amount changes each year to reflect inflation. In 2022, the most you can invest into an SEP IRA is $61,000.
A Roth IRA is a bit different than a traditional IRA. In this type of account, the money contributed to the retirement account is with post-tax contributions. The money then goes into your account and grows without taxes levied on it. You do not have to pay taxes on the money when it comes out of your account either for qualified withdrawals once you reach your retirement age. The key advantage here is that the money grows in value in your account. The amount you earn in the account is not taxed when you take it out – which means some portion of your growth is untaxed. For those married and filing jointly, the Modified Adjusted Gross Income on your taxes must be under $214,000 for the tax year 2022. Like other accounts, this income limit changes annually.
Investments in real estate can be a long-term strategy. Buying low, improving, and selling is one method in this area. Another is to purchase real estate and then rent it out, creating a steady stream of income over time. Just purchasing and owning a home may create some financial opportunities.
When it comes to real estate investing, you have a lot of options to consider. This includes investing in stocks that are backed by real estate investments. For those who want the ability to invest in the stock market but want to take advantage of the real estate market, this is one way to do that.
Options for real estate investing include rental property investment and management, real estate investment groups, which are ideal for those who want to rent real estate without having to run the process, and house flipping, a more hand-on investment. Real estate investment trusts (REITs) are investments investors can put money into at different risk levels.
A certificate of deposit, or CD, is a low-risk method for investing. Money is put into these accounts now, and they grow over time. At the end of a certain period, they achieve a specific goal of added value.
CDs are a simple and straightforward option. They can work well for those who want to tuck money away and just wait for it to grow. It is a low-key and low-risk option. At the same time, its earning opportunities are limited as well.
Beyond retirement planning, you may also want to consider other investment accounts. If you open your own investment portfolio, you could control more of the decisions you make, such as where your money goes. However, it is important to diversify your investments in these types of accounts. That way, you can ensure that you are not putting too much money into one area that ends up costing you in the long term.
It is also best to come back to your investment planning on a consistent basis. As an entrepreneur, your investment goals are likely to change year over year. That may mean adjusting how much you contribute or the types of assets you invest in over time.
You could have a goal of establishing a fund for yourself to use to invest in startups and other businesses. If you are passionate about helping others and have a strong background in business and entrepreneurship, consider the value of angel investing. You can help support the growth and development of startups that are interesting to you or those that you feel have the potential to create a big, bold outcome. While there is risk here, it may be a risk you are willing to take because of the potential rewards for you and for others. The rate of return and financial outcomes here differ widely, though.
These are just some of the investment options for business owners. Working with a seasoned professional can help you make better decisions about where to put your money so that you reach the goals you have for yourself and your future.