- This article tells the story of a small business owner who worked with Progress Wealth Management to improve their financial situation.
- The business owner had several financial concerns, including a lack of organization, high taxes, and a desire to retire early.
- Progress Wealth Management worked with the business owner to create a comprehensive financial plan that addressed their concerns and goals.
- The plan included strategies such as tax planning, retirement planning, and investment management.
- Progress Wealth Management also helped the business owner to organize their financial information and provided ongoing support and guidance.
- Over time, the business owner was able to achieve their goals, including retiring early and increasing their net worth.
As a financial advisor, one of my most rewarding experiences has been helping small business owners achieve financial freedom. It can be a challenging journey, but with the right guidance and a little bit of hard work, it is possible to turn things around and achieve long-term financial stability.
Background on The Client’s Situation
One of my clients, a small business owner, came to me feeling overwhelmed and unsure of how to manage their finances. They had a successful business, but they were struggling to get ahead due to high expenses, a lack of organization, and a lack of a process for continuing to scale their business.
How We Got Started Working Together
We sat down and went through their budget in detail, looking for areas where we could cut back on expenses and increase their income. It became clear that their high tax bill was a major obstacle to their financial success, so we focused on finding ways to lower it.
To do this, we set up a plan to carefully track and document all of their business expenses. This included keeping detailed records of everything from supplies and inventory to travel and entertainment. The main point behind tracking their expenses more closely was twofold:
- In order to help them more thoughtfully plan to scale their company, it’s important to understand how much money was left over after taking care of their variable expenses and fixed expenses. The idea behind this is, in order to plan thoughtfully on how to grow your company, it’s important to understand what positive cashflow you have to use to invest in further growing your firm.
- In order to be able to budget for your quarterly estimated tax payment, you need to understand what you can deduct. If you don’t track your expenses, you’ll overpay on taxes which can lead to waste.
We also looked for opportunities to take advantage of tax deductions and credits, such as the home office deduction for those who work from home to lower their tax bill, and found the biggest problem they had was a lack of sales so we helped them get in contact with a number of professionals who had expertise marketing in their industry.
In addition to managing their tax burden, we also set up a plan to pay off any outstanding business debt and build up their savings.
It wasn’t easy, but my client was committed to turning their financial situation around. We worked together for several months, and through hard work and dedication, they were able to lower their tax bill and pay off their debt.
How We Helped Them Scale
But our work wasn’t done yet. Now that they had a handle on their expenses and debt, it was time to focus on building wealth and scaling their business further. We had them set up a savings plan to build an emergency fund and started investing in a retirement account and other long-term investments for their personal financial plan.
How setting up a SOLO 401k helped them scale, faster
A solo 401(k) is a type of retirement savings plan that is designed specifically for self-employed business owners and self-employed workers. These plans offer many benefits that can help business owners scale their businesses faster and achieve financial freedom.
One of the key benefits of a solo 401(k) is the high contribution limits. Business owners can contribute up to $61,000 per year (as of 2022), or up to $64,500 if they are over the age of 50. This allows business owners to save a significant amount of money for retirement, which can help them reach their financial goals faster.
Another benefit of a solo 401(k) is the ability to make tax-deductible contributions. Contributions to a solo 401(k) are tax-deductible, which means that business owners can reduce their taxable income and save money on their taxes. This can help business owners free up more cash to invest back into their business, which can help them grow and scale faster.
In addition, a solo 401(k) offers flexibility in terms of investment options. Business owners can choose to invest in a variety of assets, including stocks, bonds, mutual funds, and real estate. This allows them to diversify their investments and potentially achieve higher returns over the long term.
Overall, a solo 401(k) can be a valuable tool for business owners who are looking to save for retirement and scale their businesses faster. If you’re a business owner and you’re interested in learning more about solo 401(k)s, I recommend consulting with a financial advisor to determine if this option is right for you.
We recommended this client set up a Solo 401k and the maximum employee contribution of their company and 20% of their company’s net profit pretax in order to lower both their personal income tax bill and their company’s. We also helped them draft their plan agreement and file the proper forms with the IRS come tax season. This both made saving more affordable for their retirement and got a large amount of money put away to make saving simpler.
Solo 401k Contribution Deadline
Solo 401ks give you the ability to save a huge amount of money every year as a small business owner but it’s important to know the deadlines and important dates throughout the year. If you intend on making a Solo 401k Contribution, the money has to be in the account by your tax-filing deadline. If the entity type is a Sole Proprietorship, the annual solo 401k contribution deadline is April 15th, or October 15th of any given year if the tax return extension is timely filed. Whether you should set up a Solo k heavily depends on what business type you have. If you operate as an independent contractor or if you own an S Corporation, you very well likely could benefit from setting up a Solo 401k.
There are two types of contributions to Solo 401ks
- Employee Contributions
- Employer Contributions
The IRS limit for employee contributions is $22,500 in 2023 and the limit for employer contributions is 25% of your net earnings up to a max combined contribution of $66,000 between employee and employer. Your contribution limits MATTER. If you overcontribute, you’ll be charged penalties by the IRS.
Solo 401ks are an essential part of your retirement plan as a small business owner. The tax deduction you get by contributing makes saving much more affordable (or alternatively, being able to do Roth Solo Contributions to your Solo 401k with no income limits).
For this reason, we believe that if you own a sole proprietorship or are a small business owner, you should consider a solo 401k.
How to Create A New Solo 401k
Your first step in creating a new solo 401k is to get your plan document created for your plan participants (yourself). This plan document is filed with the IRS to inform them that the plan exists, to begin with. Normally, you’ll hire a company on to draft this for you. Progress Wealth Management can help you with this. If you’d like to read the IRS publication on this topic, click here.
Once you’ve got your plan document created, you’ll have to get an EIN created and pick a new broker and complete your new account application to actually create the account.
From there, you’ll have to decide whether you’d like to make an employee deferral contribution, a Roth Contribution or an employer contribution. Keep in mind, there are catch-up contributions as well so if you’d like to make additional contributions above and beyond the limits described above, it may be possible if you’re over 50.
Who To Talk To Before Creating Your Retirement Accounts
When deciding whether to save for your retirement as a small business owner in a SEP IRA, traditional IRAs for you and your spouse, or a Solo 401k or some other kind of account is a complicated decision. If you have any full-time employees, it gets even more complex. You could fall into a trap that could ruin your company or get you fined heavily by the department of labor. Don’t make that mistake. Make sure you only talk to tax advisors or financial advisors that specialize in helping small business owners like the one you own. Progress Wealth Management is a company that provides this. We’ll make sure you create the proper type of account and manage it properly throughout the tax year and for the remainder of your life.
This experience reminded me of the importance of seeking professional advice when it comes to your finances, especially for small business owners. It can be overwhelming to try to tackle financial problems on your own, but with the right guidance and a little bit of hard work, it is possible to turn things around and achieve financial stability. If you’re a small business owner struggling with your finances, don’t hesitate to reach out to a financial advisor. We’re here to help!