While being a business owner certainly has its perks, it also comes with its own set of challenges, especially in terms of financial planning. Since you’re in charge of your own income as an entrepreneur, the responsibility of saving for retirement also falls completely on your shoulders. And not just for yourself, but your employees, too.

As you build out your company and increase your impact, don’t forget to plan for the eventuality of retirement. Here are the top 5 retirement planning tips that will help you stay on track:

1. Separate business and personal accounts

Opening a separate bank account for your business is a key move to managing cash flow, taxes, and retirement savings more effectively. Apply for a separate credit card as well, so you can keep track of how much you’re spending on work-related expenses.

2. Stick to a budget, but be flexible 

Budgeting is a very important tool in money management, as it helps you plan your finances and avoid over-spending. However, your business budget needs to be flexible so that unexpected expenses don’t have you dipping into savings. Be sure to set aside an emergency fund so you have padding in case of a crisis or sudden change in expenses.

3. Diversify your investment portfolio 

Whether you’re making investments through your business or in your own name, it’s important to select a balanced mix of assets for both short-term risk management and long-term gains. Offset high-risk stocks and bonds with stable cash investments. 

4. Actively monitor and revisit investments

Even if your investment portfolio is perfectly balanced right now, you will need to keep revisiting it based on market fluctuations and your own changing financial needs. Save as much as you can, but also keep track of your investments on an ongoing basis.

5. Invest in opening-date target funds 

If you don’t have the time to monitor your investments while running a business, consider opening an opening-date target fund. These are mutual funds where stocks and bonds are automatically rebalanced according to the date when you plan to retire.

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Choosing the right investment plan

Business owners often face difficulty choosing the right retirement plan for their business. There are a lot of nuances to each plan, and few people have the time to dig into the details. Don’t worry; I’ve done the work for you. Here are the top 6 retirement plans you should consider:

SEP IRA 

A Simplified Employee Pension (SEP) IRA allows you to save up to 25% of your net self-employment income and employees’ income for retirement.

Pro: These plans are highly flexible, since you can choose how much to contribute each year as well as whether to contribute at all.

Con: You have to make equal contributions for every eligible employee, along with your own contributions.

401k

The benefits of 401k plans make these the most common retirement plan, with contributions of up to 100% of each employee’s compensation allowed.

Pro: These plans allow you to choose how much of an employee’s contributions you will match, but they can contribute higher amounts.

Con: Setup and administrative costs for these plans can get expensive for small businesses.

Solo 401k 

Solo 401k plans work in almost the same way as traditional 401k plans, but are provided for partnerships and sole proprietorships.

Pros: Contributions can be made right up until the tax filing deadline for each year, and you can make penalty-free early withdrawals in some cases.

Cons: Only some businesses can qualify for these plans, and setting them up is a little more complicated than SEP and SIMPLE IRAs.

SIMPLE IRA 

With a Savings Incentive Match Plan for Employees (SIMPLE) IRA, you can match 1-3% of compensation for eligible employees contributing to the plan.

Pros: These plans are easy to set up and administer. Employees can make high contributions, but you only need to match a small percentage.

Cons: Early withdrawal penalties are much higher than with other plans, and contributions count against your 401k maximum limits.

Roth IRA 

These accounts are perfect for those seeking tax-free growth and distributions, as contributions are made with after-tax income.

Pros: You can make contributions to a Roth IRA as well as a SEP or SIMPLE IRA, as long as your income does not exceed a certain amount.

Con: High-income earners may not be eligible for these plans.

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Most entrepreneurs have trouble ensuring they’re putting away enough money toward their nest egg without affecting cash flow. But with the options described above, it’s relatively easy to make sure you’re providing for yourself, your business, and your employees.

If you have additional questions about the plans mentioned above—or want to open an IRA—talk to a financial advisor. Here are a few key steps to get started finding the right one.

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Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last 10 years has turned his focus to self-directed accounts and alternative investments. Rick regularly posts helpful tips and articles on his blog at SD Retirement as well as Business.com, SAP, MoneyForLunch, Biggerpocket, SocialMediaToday, and NuWireInvestor. If you need help or guidance with traditional or alternative investments, email him at rick@sdretirementplans.com.

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