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How Women Business Owners Can Save For Retirement And Reduce Taxes

Woman doing taxes

Women are expected to live another 21 years after retiring at age 65––three years longer than their male counterparts. Despite this fact, women are shockingly ill-prepared for retirement, having fewer investments and less money saved on average than men. Additionally, since women live longer, they are more at risk to experience greater inflation or market instability, making their retirement investments particularly vulnerable. 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.[1]

These issues are compounded with female entrepreneurs and business owners. In the beginning years of your business, you were building up revenues and any extra cash was likely reinvested in the growing business, not in your retirement. As the business matures and becomes cash flow positive; it’s important to pay yourself first and diversify your assets outside of your business.

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.

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 2021 is $290,000.[2] 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.

Health Savings Accounts

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.[3] 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 to invest in an HSA you have to carry a high deductible healthcare plan.

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 working from home primarily 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 specialize in designing financial plans and wealth management solutions for single 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. To schedule an introductory meeting with Nelisha, call 303-793-3202, book online here, or email nelisha.firestone@lpl.com.

About Nelisha

Nelisha Firestone is an LPL Financial Advisor with Prosperion Financial Advisors, an independent fee-only financial planning firm based in Denver, CO. With over 16 years of experience, Nelisha is passionate about guiding women to live their best lives by crafting their road map to financial security and freedom. Her drive to help women comes from watching her grandmother, who was widowed at the age of 49, struggle financially after her husband died. Nelisha recognizes that if her grandmother had someone in her life to offer her sound financial advice, she would have lived a much better life. That’s why Nelisha specializes in serving female business owners and single women with comprehensive financial planning and wealth management services. She recognizes that women have unique challenges, and she partners with her clients by educating and empowering them to make the best financial decisions possible. Nelisha has a bachelor’s degree from Kansas State University and is married to a Colorado native. Nelisha and her husband have two beautiful daughters, Addison and Eden, and love to spend time in the great outdoors hiking, skiing, and camping—to name a few! To learn more about Nelisha, connect with her on LinkedIn.

[1] https://www.ncpssm.org/eleanors-hope/issue-briefs/women-and-retirement-the-gender-gap-persists/

[2]https://www.investopedia.com/articles/financial-advisors/092315/cash-balance-pensions-pros-cons-small-biz.asp

[3] https://healthaccounts.bankofamerica.com/triple-tax-savings-advantage.shtml.

Nelisha Firestone

Nelisha Firestone

As a mother and business owner, she knows life can get busy and is full of distractions. However, financial success doesn’t happen without some meaningful planning first. No matter your stage of life, she will help you connect with your goals and craft a roadmap to pursue financial independence Nelisha has 13 years in the financial services industry. She began her career at Edward Jones in 2004 then moved her practice to LPL in 2007 where she worked primarily out of the Coors Credit Union providing advice to their membership base. She’s married to a Colorado native and is mother to two young Daughters, Addison and Eden. They love to spend time in the great outdoors hiking, skiing, and camping to name a few.

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This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.