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How Small Business Owners Can Catch Up for Retirement in a Hurry Thumbnail

How Small Business Owners Can Catch Up for Retirement in a Hurry

By Trent Derrick, CMT®

Running a small business can be a lot like raising a child. Studies reveal that the brain activity of entrepreneurs looking at their ventures is similar to that of parents looking at their own children. (1) This makes sense because a business, like a child, requires nurturing to grow and thrive, benefiting clients, employees, and society at large. The emotional investment created by this attachment makes it challenging to strike a balance between personal finances and your business. 

One of the hurdles faced by business owners is how to convert a successful business into long-term personal wealth, particularly retirement savings. Small business owners often invest their personal savings into their business and rarely plan to retire, which can lead to a severe situation as they approach retirement age without a nest egg.

Remembering that your retirement is just as crucial as the success of your business allows you to better prioritize your personal needs. If you are looking to catch up on retirement savings, here are four ways to do so.

1. Find the Right Plan for You

Unfortunately, you don’t have an employer-sponsored 401(k) account with matching contributions at your fingertips. That doesn’t mean you are out of luck when it comes to building a nest egg. Here are some savings options to consider.

Traditional IRA

A traditional IRA is similar to a 401(k) in that you can contribute pre-tax dollars to an investment account that grows tax-deferred. For 2023, you can contribute up to $6,500, or if you’re over age 50, up to $7,500.

Roth IRA

With a Roth IRA, your contributions are not tax-deductible like traditional IRAs. However, your earnings grow tax-deferred and your withdrawals are tax-exempt (subject to IRS guidelines). Like a traditional IRA, you can contribute up to $6,500, or if you’re over age 50, a total of $7,500. However, one caveat to the Roth is that there are income restrictions. (2) If your income surpasses the cutoff amount for a Roth IRA, you can still contribute to one through a backdoor Roth transaction.


A SEP IRA, also known as a Simplified Employee Pension, is an IRA similar to a traditional IRA. As an employer of yourself, you can make contributions on your own behalf for your retirement. You can set up a SEP IRA in addition to a solo 401(k) and can contribute either 25% of your self-employed income or $66,000 per year (whichever is the lesser amount).

Solo 401(k)

A solo 401(k) is similar to a traditional 401(k) you’d contribute to as an employee. Funds invested within a solo 401(k) plan grow on a tax-deferred basis. The powerful feature of this plan is that you can contribute in two separate capacities, as an employee and as an employer. Wearing your employee hat, you can defer up to $22,500 (or $30,000 if age 50 or older). As the employer, you can also contribute up to 25% of compensation as defined by the plan. Combined, you can contribute up to $66,000 if you are under 50 and $73,500 if you are 50 or older.

Adding a Defined Benefits Plan

In order to save more than what your IRA limits you to, you can set up a defined benefit plan. These plans have much higher tax-advantaged contribution limits and can be designed to fit the needs of almost any business. Depending on your age and income, a defined benefit plan allows you to set aside up to hundreds of thousands of dollars to fund your retirement, making it possible to save a lot, even if you have little time.

Ultimately, everyone’s situation is unique, so there’s no one right solution. However, for many people, it makes sense to contribute pre-tax and post-tax dollars to several different accounts. For example, along with a solo 401(k), you may also want to contribute to a Roth or SEP IRA.

2. Banish Debt

The less debt you have when you enter retirement, the better. Whether it’s personal debt in the form of credit cards, car loans, or a mortgage, or business debt in the form of bank loans or equipment purchases, reducing your debt before retiring will lower your monthly expenses and enable your savings to grow and last longer. Review all current debts you face and compare interest rates and balances. This can help you decide which to pay off first. 

3. Look Ahead to the Future

Do you have an exit plan? Even if you are just in the beginning stages of your business, it’s imperative to have a plan for the future of your company because it will likely become one of your largest assets. 

If you are heavily relying on the sale or succession of your business to take care of your future financial needs, it’s critical that you start thinking about how and when you may want to leave your business and what you can do now to prepare so you receive the highest price possible. 

Having a strategic transition plan will make your company more appealing to buyers who want assurance that it will continue to thrive without you. Even if you’re passing the business on to family members, you need a plan in place to ensure that it continues to prosper and all family members are treated equally.

4. A Partner Who Can Help

As a small business owner, your life has added complexity both personally and financially. In addition to the responsibilities of saving for retirement and supporting your family, you also have the tasks of managing employees and dealing with complicated tax matters. Your situation is unique, and it’s likely you would benefit from partnering with an advisor who understands the specific needs of small business owners.

At Legacy Wealth Management, we specialize in catering to the unique requirements of small business owners, offering tailored services to address all aspects of their financial concerns. If you’re interested in learning more about how we can assist you in rapidly building your retirement savings, please don’t hesitate to schedule an appointment with us. Reach out today to book a consultation with me here or email me at trent@legacywm.com

About Trent

Trent Derrick is a financial advisor and Chief Market Technician at Legacy Wealth Management. Trent is passionate about the value small businesses bring to their communities and specializes in serving small business owners by providing seamless financial advisory services tailored to their financial needs, including tax planning strategies, cash flow management, and retirement planning. Trent has a bachelor’s degree from the College of Charleston and studied economics at the University of South Carolina, Columbia. He is a Chartered Market Technician® (CMT®) professional. Trent serves as a guest lecturer for the College of Charleston’s MBA program and acts as chairman of the Market Technician Association’s Charleston chapter. When he’s not working, Trent, a proud Eagle Scout, enjoys volunteering with the Charleston Animal Shelter’s outreach program. Trent and his wife love to cook international cuisines and host dinner parties with their friends. To learn more about Trent, connect with him on LinkedIn.

The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. 

Legacy Wealth Management and LPL Financial do not offer tax advice or services.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA. 


(1) https://www.forbes.com/sites/rhettpower/2019/06/16/how-parenthood-has-made-these-8-entrepreneurs-better-business-owners/?sh=291971427012

(2) https://www.fidelity.com/retirement-ira/contribution-limits-deadlines#:~:text=Total%20annual%20contributions%20to%20your,%247%2C000%20(age%2050%20or%20older)