By Greg Farrall, PPC®, CWS®, CPFA®
Women-owned businesses continue to grow in numbers throughout the U.S. In fact, 40% of businesses are owned by women. (1) While many business owners initially focus on building up revenues and reinvesting profits into the business, this can mean income and retirement savings fall by the wayside.
It’s no secret women tend to live longer than men—five years longer than their male counterparts (2)—yet despite this fact, women are not adequately planning for retirement. Additionally, since women live longer, they are more at risk to experience greater inflation or market instability, making their retirement investments particularly vulnerable.
Women business owners also tend to have different roles at home. In general, familial caregiving responsibilities, such as for an elderly parent or a newborn, also often fall primarily on the women’s shoulders, giving many women less time in the workforce and ultimately less money to save for retirement. (3)
There are many strategies that we use to help our female business owners save for retirement and mitigate their tax burden. Below, we list a few of the most common retirement and tax-reduction strategies that could help you outline your financial plan.
Understanding Cash Balance Plans
Cash balance plans are a great tool to use if you contributed less toward retirement during the lean years when your business was in its infancy. Cash balance plans offer the business owner and her employees a choice of taking a lump-sum amount at retirement or opt for a pension-type payment based on the balance.
What makes this particularly appealing to business owners is that, unlike other retirement plans, cash balance retirement plans have higher contribution limits that increase with age. For a 65-year-old, the maximum contribution she can make toward a cash balance plan in 2022 is $295,000. (4) The contribution to a cash benefit retirement plan is also tax-deductible, so if you are looking for an efficient way to bolster your retirement while mitigating your tax burden, a cash balance plan may be an effective strategy to use.
Contribute to a Health Savings Account
HSAs are a really smart method to save on your tax bill while investing in your future. This is because HSAs offer a triple tax advantage. No taxes are paid on contributions that are made as a payroll deduction, and no taxes are paid on withdrawals from the account if they are made for qualified health expenses. Additionally, investment earnings on the HSA are also not taxed. (5) It is also not a “use it or lose it” strategy. You can contribute the annual maximum up to age 65 and roll it over year after year so it’s there when you need it. The only catch is that to invest in an HSA, you have to carry a high-deductible healthcare plan.
Maximize Deductions
This is an obvious and simple way to cut down on your tax bill, but it is surprising just how many small business owners forget to deduct their qualifying expenses. Do you travel for work? Are you working from a home office? Many of us are primarily working from home and have been since March of 2020 with the COVID-19 outbreak in the United States. Your home office expenses and your work travel expenses can be deducted, which could save you thousands over the course of running your business. Reducing your taxes leaves more surplus cash flow for other investments. It’s always best to consult your tax professional in this area.
Questions? We Can Help
We at Farrall Wealth specialize in designing financial plans and wealth management solutions for women and female business owners. We know that your wealth management plan requires a unique perspective, and we can help design a plan that will allow you to make the best financial decisions throughout your retirement. Call our office at 219-246-2516, email [email protected], or schedule a complimentary consultation online. Be sure to visit our website to learn more and connect with us on LinkedIn, Facebook, Twitter, and YouTube.
About Greg
Greg Farrall is CEO and owner of Farrall Wealth, an independent, boutique wealth management firm that is dedicated to helping women and business owners create customized financial plans that allow them to grow, protect, preserve, and distribute their wealth. Greg is known for being a problem-solver who walks his clients through whatever life throws at them. He prioritizes building long-term relationships and is passionate about going the extra mile for his clients so they can pursue their goals and live the lives they want. Greg has a bachelor’s degree in international business from the University of Wollongong in Australia and a bachelor’s degree in finance and marketing from Indiana University Bloomington. He is a Professional Plan Consultant® (PPC®) and a Certified Wealth Strategist® (CWS®) professional. And he recently received his Certified Plan Fiduciary Advisor (CPFA®) designation. You can listen to him on his financial literacy and business topic podcast, Money Matters With Greg, on iTunes, Google, and Spotify. He’s also on YouTube, Twitter, and Facebook at @FarrallWealth.
Greg is a pillar of his community and served as the 2013-14 co-chair for the United Way campaign, through which he helped raise $1.8 million for 38 nonprofit organizations across Porter County, Indiana. He also served as president of the Valparaiso Rotary Club. Currently, he is on the advisory board for the Kelley School of Business and Dean of Students’ board at Indiana University. He also holds a position on the Culver Academies parents’ board.
When he is not working, you can find Greg spending time with his family or investing in one of his many passions, which include cooking, Spartan races, fly fishing, and meditation. To learn more about Greg, connect with him on LinkedIn.
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational presentation.
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(1) https://www.fundera.com/resources/women-owned-business-statistics
(2) https://www.livescience.com/why-women-outlive-men.html
(3) https://www.caregiver.org/resource/women-and-caregiving-facts-and-figures/
(4) https://www.cashbalancedesign.com/resources/maximum-contribution-calculator/
(5) https://healthaccounts.bankofamerica.com/triple-tax-savings-advantage.shtml.
