The Tax Move Most Business Owners Forget Until December
Every year, business owners leave meaningful tax savings on the table by not evaluating their retirement plan options until it is too late.
Here is the scenario: you had a strong revenue year. Your CPA mentions maximizing retirement contributions. But by mid-December, the only option available is a SEP-IRA with a contribution limit based on net self-employment income.
What most owners do not realize is that a Solo 401(k) plan offers significantly higher contribution limits, especially for owners over 50, and allows employee deferrals that a SEP-IRA does not. The catch: a Solo 401(k) must be established before December 31 to count employee deferrals for the current year.
A defined benefit plan offers even higher deductible contributions, sometimes exceeding $200,000 annually, depending on plan design and actuarial calculations. But defined benefit plans require more lead time to establish and fund.
September is when business owners should be evaluating these options, not December. The analysis requires projecting full-year income, comparing contribution limits across plan types, and confirming the plan fits within the broader tax, investment, and exit strategy.
If your retirement plan conversation has not happened yet this year, now is the time.
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Tax Disclosure: The specialized information we provide regarding tax minimization planning is not intended to (and cannot) be used by anyone to avoid paying federal, state or local municipalities taxes or penalties. You should seek advice based on your particular circumstances from an independent tax advisor as tax laws are subject to interpretation, legislative change and unique to every specific taxpayer's particular set of facts and circumstances. Advisory services offered through Bellwether Wealth, an SEC Registered Investment Advisor. Bellwether does not provide tax or legal advice. The opinions and views expressed here are for informational purposes only. Please consult with your tax and/or legal advisor for such guidance.