If you’re a Vineyard business owner, you probably earn most of your income from June to September. That may vary depending on your business’s seasonality, but that’s what I’ve witnessed in my experience and conversation with island business owners.
Even if your business is profitable enough to support your lifestyle with a reasonable sustainability level, you should still consider building a retirement plan outside of your business.
Especially with what we’ve experienced with the pandemic this year, it illustrates the importance of having a strong personal balance sheet outside your personal business.
Government programs like the Payroll Protection Program (PPP) are great for holding over your business cash flow, but you shouldn’t rely on the government to solidify your personal finances.
Here are three reasons why Martha’s Vineyard Business Owners Need A Retirement Plan:
1) You could be deferring income and paying less in taxes.
Do you like paying more taxes than is necessary? Because I don’t. If you’re not utilizing a retirement plan for your business, you’re leaving free money on the table. Hopefully, you’re already making sure to track all of your business expenses to reduce your tax liability; deferring income via a retirement plan is just another tool in your tool kit.
2) You could be building a diversified investment portfolio that is not correlated to your personal business.
While you’re deferring income taxes, you’re using the money you contribute to your business retirement account to invest in the global stock market. Think of it this way; instead of just owning one company (granted that you have more control over), you can own thousands of companies from all over the world for little to no cost (when investing in low-cost index funds).
3) You could be helping incentivize your employees to stay working for you and invest for their financial future.
If you’re looking to retain and reward your hard-working employees, establishing a retirement plan is a great way to do so. Depending on the type of retirement plan that makes sense for your business, you can build provisions for vesting schedules around employer matching contributions or how long they have to be an employee before they’re eligible to take advantage of the plan.
Like you, the retirement plan allows your employees to defer income taxes and invest in their financial future.
You never know how providing someone the opportunity to gain experience investing their hard-earned money will impact their long-term financial success. Providing someone the incentive to invest for their long term financial success can make all the difference when spread out over a career.
I’ve helped island business owners establish retirement plans for their business and solidify their personal retirement plan.
Think about your net worth after taxes.
A $1M Traditional (pre-tax) IRA is not worth $1M after taxes.
— T.J. van Gerven (@TJvanGerven) October 7, 2020