401k contribution limits 2020

401k conntribution limits for 2020

401k contribution limits for 2020 are $19,500 per person. All 401k participants over the age of 50 can add a catch-up contribution of $6,500.

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What is 401k?

401k plan is a workplace retirement plan where both employees and employers can make retirement contributions. These retirement plans can be one of the easiest and most effective ways to save for retirement. As an employee, you can make automatic contributions to your 401k directly through your company payroll. You can choose the percentage of your salary that will go towards your retirement savings, Most 401k will provide you with multiple investment options in stocks and fixed income. Additionally, most companies offer a 401k match up to a certain percentage. In most cases, you need to participate in the plan in order to get the match.

There are two types of contributions – traditional 401k tax-deferred and tax-exempt Roth 401k contributions.

Tax-deferred 401k

Most employees, typically, choose to make tax-deferred 401k contributions. These payments are tax-deductible. They will lower your tax bill for the current tax year. Your investments will grow on a tax-deferred basis. Therefore, you will only owe federal and state taxes when you start withdrawing your savings.

Roth 401k

Roth 401k contributions are pretax. It means that you will pay all feral and state taxes before making your contributions. The advantage of Roth 401k is that your retirement savings will grow tax-free. As long as you keep your money until retirement, you will withdraw your gain tax-free. It’s a great alternative for young professionals and workers in a low tax bracket.

How much can I contribute to my 401k in 2020?

401k contribution limits change every year. IRS typically increases the maximum annual limit with the cost of living adjustment and inflation. These contribution limits apply to all employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan. Additionally the limits apply to both tax-deferred and Roth contributions combined. 

  • Employees can contribute up to $19,500 to their 401(k) plan for 2020,  $500 more than  2019.
  • Employees of age 50 or over are eligible for an additional catch-up contribution of $6,500 in 2020,  $500 higher than  2019
  • Employee compensation limit for calculating 401k contributions is $285,000, $5,000 more than 2019
  • Companies can make a matching contribution up to the combined limit of $57,000 or $63,500 with the catch-up contribution. If an employee makes the maximum allowed contribution, the company match cannot exceed $37,500 in 2020.

Solo 401k contribution limits 2020

A solo 401k plan is a type of 401k plan with one participant. Those are usually solo entrepreneurs, consultants, freelancers, and other small business owners. Self-employed individuals can take advantage of solo 401k plans and save for retirement.

  • The maximum contribution limit in 2020 for a solo 401k plan is $57,000 or $63,500 with catch-up contributions. Solo entrepreneurs can make contributions both as an employee and an employer.
  • The employee contribution cannot exceed $19,500 in the solo 401(k) plan for 2020.
  • Self-employed 401k participants, age 50 or over are eligible for an additional catch-up contribution of $6,500 in 2020.
  • The total self-employed compensation limit for calculating solo 401k contributions is $285,000.
  • Employer contribution cannot exceed 25% of the compensation
  • If you participate in more than one 401k plan at the same time, you are subject to the same annual limits for all plans.

Please note that if you are self-employed and decide to hire other employees, they will have to be included in the 401k plan if they meet the plan eligibility requirements.

 

Digital strategies for small business owners

Digital Startegies for busienss owners

Digital strategies for small business owners post coronavirus. The coronavirus crisis pushed many small businesses on the verge of existence. The global lockdown forced non-essential small businesses to shut doors and furlough or lay off employees. Even essential businesses saw sharp declines in revenue.

The main challenge for business owners was how to pay salaries rent with limited visibility in the future. Will customers ever come back?

Today, the existential question for all small business owners is how do adopt in the aftermath of the coronavirus? Rightfully or not, the lockdown favored mega-cap companies with high cash reserves, multiple distribution channels, and diversified revenue streams. Furthermore, the lockdown sped up the digitalization of many aspects of doing business. Almost overnight, telemedicine became a norm. Video conferencing is a must. Digital selling channels grew exponentially in a matter of weeks. What was a trend before the coronavirus pandemic now is an industry-standard.

Until we get an effective vaccine, many social distancing policies will remain in place. Looking forward to the future, the majority of these measures will become a prerequisite to prevent or slow down future pandemics.

If you are a business owner trying to boost your established business or starting a brand new venture, this article is for you. Let‘s break it down a few ideas on how to succeed in the post coronavirus world.

Build a digital channel

Having a digital channel is no longer wishful thinking. It‘s a requirement. Even if you cannot sell your products and services directly online, you can still build a digital channel. You should use it to stay in touch with your customers, post updates about your business, and provide helpful tips and ideas. Your business is unique. Your customers are unique. You need to know who your customers are. How do they find about your business? How can you reach out to them virtually?

Google For Business

Google Search is a utility. It is the first place where people will go to look for your products and services. To give you some perspective, Google has 92.42% of the search engine market share worldwide. It is estimated that Google processes approximately 70,000 search queries every second, translating to 5.8 billion searches per day and nearly 2 trillion global searches per year. Without a direct referral, To compete on Google Search, you need Google My Business Page.

This is how our firm page looks like on Google My Business.

Digital strategies for small business owners post coronavirus

Your Website is your showroom

I cannot emphasize enough how important for you is to have a website where you can showcase your products and service. You will be surprised how many businesses still operate in the “digital darkness” with mediocre websites or no websites at all. Your website is the place where your prospects and future customers will learn about your business. Remember, this is the place where people go to find out about you. Your website must be memorable, informative, and easy to navigate.

Sell your products and services online

You can use your website to sell your products directly to your customers. The advantage is that you can cut the middlemen. By selling directly to your customers, you might be able to earn higher profit margins. The challenge will be to generate enough visitor traffic. There are 200 million active websites globally. Driving traffic to your website can be a big hurdle, depending on your industry and competitors. It is costly and time-consuming.

Alternatively, you can use third-party platforms such as Amazon, Wal Mart, Esty, Google Shopping, or Facebook Marketplace. Obviously, Amazon is the most dominant digital seller, followed by everyone else. Even though these marketplaces can cut in your profit margins, you will have access to a bigger audience. You can achieve economies of scale and improve your logistics.

Nowadays, consumers are overloaded with information and digital noise. To be successful, you need to find your niche and the best way to get in front of your customers.

Search Engine Optimization (SEO)

If you want to drive business to your website organically, you must invest time and money in Search Engine Optimization (SEO). Moz is a good starting point to learn more about SEO. According to Moz, SEO is “the practice of increasing both the quality and quantity of website traffic, as well as exposure to your brand, through non-paid (also known as “organic”) search engine results” ….. “It’s about understanding what people are searching for online, the answers they are seeking, the words they’re using, and the type of content they wish to consume. Knowing the answers to these questions will allow you to connect to the people who are searching online for the solutions you offer”.

Market your business on social media

Everybody is on social media these days. Facebook, LinkedIn, Twitter, Snap Chat, Pinterest, Tik Tok, you name it. I am sure I am forgetting something. Is your business on social media? Can customers discover you on Facebook? Did you know that Facebook is the second largest digital advertising platform? Google is number one. I am not promoting either one of them. However, if you are looking for targeted advertising by interest, zip code, etc, Google and Facebook should be on your radar.

Here is our Facebook page:

Have a blog or a video channel

If you are reading this article, it means you are reading my blog. I am a financial advisor, but I also blog. My blog is a way to communicate with my clients and prospects. Apart from my time, it costs me nothing. Having a blog or a video channel is another way to showcase your business. It gives your prospects a chance to learn about you firsthand. It takes a bit of courage to write a blog or do a video. You may not think that you have anything to say. But you are wrong. You are an expert in your field. People will want to know your opinion and what you have to offer.

Build your client emails list

You are probably tired of receiving junk in your mailbox. I do not blame you. I feel the same way. But hear this, there were 294 billion emails sent in 2019. By 2024t, this number will surpass $350 billion. Email marketing is the primary driver of customer retention and acquisition for small and midsize businesses. According to the data, 81% of SMBs still rely on email as their primary customer acquisition channel, and 80% for retention. Research findings from this study show that email marketing tops the chart in comparison to organic search, paid search, and social media when it comes to customers’ acquisition & retention. I do not want to minimize the importance of Google and Facebook, but if you are looking for direct outreach, there is no competition with email marketing.

Accept digital payments

The coronavirus pandemic accelerated the long-term trend of digital payments growth. The Global Digital Payments Market was valued at $3.9 trillion in 2019. It is expected to reach $9,7 trillion by 2025, with an average annual growth of 13.7%. The virus pandemic forced consumers to be more aware of how they make payments.

How many times you order food at a restaurant, and they ask you to sign the receipt and write down the gratuity. How often do you need to touch the POS terminal when you make a purchase in the store?

Let us go one step further. Contactless payments will be the next wave of digital payments. NFC, QR codes, and digital wallets will be the predominant payment method. If your business is not offering digital payments, you will be at a significant disadvantage against your competition.

Be creative

Not all businesses can be digital. You can‘t get a haircut virtually. And you can‘t go to a virtual spa. Your closed cannot be tailored without going to the tailor shop. Desperate times require desperate and creative measures. How about becoming a mobile barber? Perhaps you can offer wellbeing classes online? In order to survive, you have to be innovative and resourceful. Tailors are making facial masks. Breweries are making hand sanitizers. The truth is no one knows your business better than you. And no one knows your customers better than you. Find a way to reach out to your customers in ways that make sense for them. Find creative ways to improve their life.

Cybersecurity

Unfortunately, digital growth is bringing bad actors looking to profit from people’s fears. If you want to expand your digital business, you must invest in cybersecurity. You need to protect yourself and your client’s information.

Final words

I am a financial advisor, not a digital marketing expert. But I am also a small business owner. I have been blogging and posting on social media since 2016. I have hired and let go of several marketing companies. The reality is that it is not easy to compete with large corporations with big marketing budgets. However, small business owners like us are the backbone of the global economy (not just in the US). We are resourceful, creative, and adaptable. We find ways to get things done and make our customers happy.

8 reasons to open a solo 401k plan

8 reasons why entrepreneurs should open a solo 401k plan

What is a solo 401k plan

The solo 401k plan is a powerful tool for entrepreneurs to save money for retirement and reduce their current tax bill. These plans are often ignored and overshadowed by the more popular corporate 401k and SEP IRA plans.  In fact, there is a lack of widely available public information about them. Simply put, not many people know about it. In this article, I will discuss 8 reasons why entrepreneurs should open a solo 401k plan.

Solo or one participant 401k plans are available to solo entrepreneurs who do not have any personnel on staff. If a business owner employs seasonal workers who register less than 1,000 hours a year, then he or she may be eligible for the solo 401k plans as well. The solo plans have most of the characteristics of the traditional 401k plan without any of the restrictions.

Learn more about our Private Client Services

What are some of the most significant benefits of the self-employed 401k?

Maximize your retirement savings with a solo 401k

Self-employed 401k allows a business owner to save up to $56,000 a year for retirement, plus an additional $6,000 if age 50 and over. How does the math work exactly?

Solo entrepreneurs play a dual role in their business – an employee and an employer. As an employee, they can contribute up to $19,000 a year plus catch-up of $6,000 if over the age of 50. Further, the business owner can add up to $37,000 of contribution as an employer match. The employee’s side of the contribution is subject to 25% of the total compensation, which the business owner must pay herself.

Example: Jessica, age 52, has a solo practice. She earns a W2 salary of $100,000 from her S-corporation. Jessica set-up a solo 401k plan. In 2017 she can contribute $18,000 plus $6,000 catch-up, for a total of $24,000 as an employee of her company. Additionally, Jessica can add up to $25,000 (25% x $100,000) as an employer. All-n-all, she can save up to $49,000 in her solo 401k plan.

One important side note, if a business owner works for another company and participates in their 401(k), the above limits are applicable per person, not per plan. Therefore, the entrepreneur has to deduct any contributions from the second plan to stay within the allowed limits.

Add your spouse

A business owner can add his or her spouse to the 401k plan subject to the same limits discussed above. To be eligible for these contributions, the spouse has to earn income from the business. The spouse must report a wage from the company on a W2 form for tax purposes.

Reduce your current tax bill

The solo 401k plans contributions will reduce your tax bill at year-end. The wage contributions will lower your ordinary income tax. The company contributions will decrease your corporate tax.

This is a very significant benefit for all business owners and in particular for those who fall into higher income tax brackets. If an entrepreneur believes that her tax rate will go down in the future, maximizing her current solo 401k contributions now, can deliver substantial tax benefits in the long run.

Opt for Roth contributions

Most solo 401k plans allow for Roth contributions. These contributions are after taxes. Therefore, they do not lower current taxes. However, the long-term benefit is that all investments from Roth contributions grow tax-free. No taxes will be due at withdrawal during retirement.

Only the employee contributions are eligible for the Roth status. So solo entrepreneur can add up to $19,000 plus $6,000 in post-tax Roth contributions and $37,000 as tax-deductible employer contributions.

The Roth contributions are especially beneficial for young entrepreneurs or those in a lower tax bracket who expect that their income and taxes will be higher when they retire. By paying taxes now at a lower rate, plan owners avoid paying much larger tax bill later when they retire, assuming their tax rate will be higher.

No annual test

Solo 401k plans are not subject to the same strict regulations as their corporate rivals. Self-employed plans do not require a discrimination test as long as the only participants are the business owner and the spouse.

If the company employs workers who meet the eligibility requirements, they must be included in the plan.  To be eligible for the 401k plan, the worker must be a salaried full-time employee working more than 1,000 hours a year. In those cases, the plan administrator must conduct annual discrimination test which assesses the employee participation in the 401k plan. As long as solo entrepreneurs do not hire any full-time workers, they can avoid the discrimination test in their 401k plan.

No annual filing

Another benefit of the 401k plans is the exemption from annual filing a form 5500-EZ, as long as the year-end plan assets do not exceed $250,000. If plan assets exceed that amount, the plan administrator or the owner himself must do the annual filing. To learn more about the annual filing process, visit this page.

Asset protection

401k plans offer one of the highest bankruptcy protection than any other retirement accounts including IRA. The assets in 401k are safe from creditors as long as they remain there.

In general, all ERISA eligible retirement plans like 401k plan are sheltered from creditors. Non-ERISA plans like IRAs are also protected up to $1,283,025 (in aggregate) under federal law plus any additional state law protection.

Flexibility

You can open a self-employed 401k plan at nearly any broker like Fidelity, Schwab or Vanguard. The process is relatively straightforward. It requires filling out a form, company name, Tax ID, etc. Most brokers will act as your plan administrator. As long as, the business owner remain self-employed, doesn’t hire any full-time workers and plan assets do not exceed $250,000, plan administration will be relatively straightforward.

As a sponsor of your 401k plan, you can choose to manage it yourself or hire an investment advisor. Either way, most solo 401k plans offer a broader range of investments than comparable corporate 401k plans. Depending on your provider you may have access to a more extensive selection of investment choices including ETFs, low-cost mutual funds, stocks, and REITs. Always verify your investment selection and trading costs before opening an account with any financial provider.

About the author:

Stoyan Panayotov, CFA, MBA is a fee-only financial advisor in Walnut Creek, CA, serving clients in the San Francisco Bay Area and nationally. Babylon Wealth Management specializes in financial planning, retirement planning, and investment management for growing families, physicians, and successful business owners.

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6 Saving & Investment Practices All Business Owners Should Follow

6 Saving & Investment Practices All Business Owners Should Follow

In my practice, I often meet with small business owners who have the entire life savings and family fortune tied up to their company. For many of them, their business is the only way out to retirement. With this post, I would like to offer 6 saving & investment practices all business owners should follow.

Having all your eggs in one basket, however, may not be the best way to manage your finances and family fortune. Think about bookstores. If you owned one 20-30 years ago, you probably earned a decent living. Now, bookstores are luxuries even in major cities like New York and San Francisco. Technology, markets, consumer sentiments, and laws change all the time. And that is why it is vital that you build healthy saving and investment routines to grow your wealth, protect your loved ones, and prepare yourself for the years during retirement.

Start Early

I always advise my clients to start saving early and make it a habit. Saving 10-20 percent of your monthly income will help you build and grow your wealth. For instance, by starting with $20,000 today, with an average stock market return of 6 percent, your investments can potentially accumulate to $115,000 in 30 years or even $205,000 in 40 years.

Saving and investing early in your career can build a buffer to correct for any sidesteps or slip-ups. Starting to build your wealth early will provide the necessary protection against market drops and economic recessions and prepare you for large purchases like a new home, college tuition, a new car or even expanding your business.

Build a Safety Net

Life can often be unpredictable in good and bad ways. Having an emergency fund is the best way to guard your wealth and maintain liquidity for your business. I typically recommend keeping 6 to 12 months of basic living expenses in your savings account.

Even though my firm does not offer insurance, I often advise my clients especially those who are sole bread earners or work in industries prone to accidents to consider getting life and disability insurance. Good insurance will guarantee protection and supplemental income for yourself and your loved ones in case of unexpected work or life events.

Manage Your Debt

The last eight years of a friendly interest environment has brought record levels of debt in almost every single category. Americans now owe more than $8.26 trillion in mortgages, $1.14 trillion in auto loans, and $747 billion in credit cards debt. If you are like me, you probably don’t like owing money to anyone.

That’s great, however, taking loans is an essential part of any enterprise. Expanding your business, building a new facility or buying a competitor will often require external financing. Keeping track of your loans and prioritizing on paying off your high-interest debt can save you and your business a lot of money. It may also boost your credit score.

Set-up a Company Retirement Plan

The US Government provides a variety of options for businesses to create retirement plans for both employees and owners. Some of the most popular ones are employer-sponsored 401k, self-employed 401k, profit-sharing, SIMPLE IRA, and SEP IRA.

Having a company retirement plan is an excellent way to save money in the long run. Plan contributions could reduce current taxes and boost your employees’ loyalty and morale.

Of the many alternatives, I am a big supporter of 401(k) plans. Although they are a little more expensive to establish and run, they provide the highest contribution allowance over all other options.

The maximum employee contribution to 401(k) plans for 2017 is $18,000. The employer can match up to $36,000 for a total of $54,000. Individuals over 50 can add a catch-up contribution of $6,000. Also, 401k and other ERISA Plans offer an added benefit. They have the highest protection to creditors.

Even if you already have an up-and-running 401k plan, your job is not done. Have your plan administrator or an independent advisor regularly review your investment options.

I frequently see old 401k plans that have been ignored and forgotten since they were first established. Some of these plans often contain high-fee mutual funds that have consistently underperformed their benchmarks for many consecutive years. I typically recommend replacing some of these funds with low-fee alternatives like index funds and ETFs. Paying low fees will keep more money in your pocket.

Diversify

Many business owners hold a substantial amount of their wealth locked in their business. By doing so, they expose themselves to what we call a concentrated risk. Any economic, legal and market developments that can adversely impact your industry can also hurt your personal wealth.

The best way to protect yourself is by diversification. Investing in uncorrelated assets can decrease the overall risk of your portfolio. A typical diversified portfolio may include large-, mid-, small-cap, and international stocks, real estate, gold, government, and corporate fixed income.

Plan Your Exit

Whether you are planning to transfer your business to the next generation in your family or cash it in, this can have serious tax and legal consequences. Sometimes it pays off to speak to a pro.

Partnering with someone who understands your industry and your particular needs and circumstances, can offer substantial value to your business and build a robust plan to execute your future financial strategy.

 

The article was previously published in HVACR Business Magazine on March 1, 2017

11 Effective financial strategies for business owners

Financial strategies for business owners

Eleven ways to boost and protect your wealth

Small and mid-size businesses are the backbone of the US economy. Entrepreneurship and creativity have been moving the American economy for centuries. In fact, the US has one of the best grooming environments for start-ups and small businesses.  Many flagship consumer brands like McDonald’s, Starbucks, and Apple started very small with one restaurant, a coffee shop, and a garage workshop to become international leaders in their industry.

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Digital Strategies for Busines Owners During and Post Coronavirus

Business owners spend several years building up their business. They invest a significant amount of personal time and capital to grow their companies.  Almost always these entrepreneurs will have their family fortune locked in their business. Those who succeed can go public or pass their wealth to the next generation.

Entrepreneurs are a special breed. Many have a vision or a single idea that that drives their pursuit for success. Others have unique skills or talent that make them stand out from their competitors. They are independent, self-driven, and bold.

Focused on their business, more often than not entrepreneurs ignore or delay their personal financial planning.  In this post, I would like to discuss several practical steps that business owners can follow to establish their successful financial plan.

Balance your business and personal goals

The first and most crucial step in the personal financial planning process is setting your short and long-term financial goals. In many cases, the business goals can interfere and clash over personal financial goals. Business goals to expand into a new market or purchase a new factory can negatively interfere with your personal goals such as saving for retirement or college education for your children. Striking the right balance between your business and personal goals is key to achieving them.  Prioritizing one over the other may hurt your long-term financial success.

 

Explore different financing alternatives

Every new business idea requires capital to start. The success of the venture depends on the owner’s ability to secure financing. Sometimes, the funding comes from personal savings or the sale of a property. Other times, the owner needs to look for external funding within his or her social circle or even approach a financial institution. The external financing can be in the form of a loan or equity stake.

Both debt and equity financing come with embedded costs. The cost can vary depending on the company’s size, industry, history, economic conditions, etc. One of the main advantages of debt financing is that the interest on the loan is tax deductible. One the other hand equity financing may allow for more flexibility.

Another great way of financing your idea is your customers. Indeed, your clients are one of the best and inexpensive sources of financing. If your customers love your product, they will be willing to give you an advance payment, subscribe to your platform or consider a product/service exchange.

In any case, the entrepreneurs should seek to minimize the overall cost of capital of its business by exploring multiple financing channels.

Control cost

Even the best idea can fail if it doesn’t generate profit. In simple numerical terms, the company revenue should be higher than its expenses. Many ventures do not succeed because the company cannot generate enough revenue to cover all costs. Clearly, the first answer will be to generate more revenue. However, many successful companies are notorious with their focus on cost control. Business owners must stay on top of their expenses. They must track and analyze your cost. Owners should look for operational deficiencies and overlaps, result-based compensation, economies of scale and ways to increase productivity.

 

Manage liquidity

Businesses need cash to maintain healthy growth. Not surprisingly, the prominent investor Warrant Buffet prefers to invest in companies generating significant cash flows. The capacity to produce cash from its operations will determine the company’s ability to pay its employees, creditors, and vendors. Building a disciplined system of managing receivables and payables and maintaining a cash buffer for emergencies are keys for effective cash flow management.

 

Manage your taxes

Filing and paying taxes is a long and painful process. Tax law is very complex. Many hidden threats can trigger tax events for you. There are also many opportunities to save on taxes. Often, your tax bill depends on your company’s legal status. Sole proprietors have different taxation rules from c-corporation. Speak to an accountant or tax lawyer to find out what legal status works best for you. To avoid missed opportunities and last-minute mistakes, you have to prepare for the filing process in advance. Start early. Keep a clean record of all your expenses. Track all tax filing dates. Remember to pay all federal and state taxes, social security, Medicare, local permits, and fees. Consider using professional bookkeeping software and working with a CPA.

 

Manage risk

Risk comes in all shapes and forms – business risk, operational risk, financial risk, disability risk and so on. Managing the risk from different sources is a mandatory skill for any successful business owner and executive.  External threats can impose significant obstacles to profitability and expansion but if managed successfully can create substantial opportunities for long-term growth.

Business threats can come from new competitors, new technology, changes in consumer demand, new regulatory requirements, and so on. Business owners have to be on top of these changes and often even drive the change.

Operational risk impacts the companies’ ability to serve their customers.

Financial risk can come from interest rates, volatile stock markets, and liquidity crunches. Macroeconomic factors can affect your clients’ ability to pay off their debt. Having a solid financial strategy, building buffers and managing cash will allow the business to withstand unexpected financial turbulence.

Short-term and long-term disability will prohibit the owners and key employees to perform their duties. Injuries and sickness of key personnel can significantly hurt any business. Prolonged disability can limit owners’ ability to make a living, support their families, and grow their business. Having disability insurance can help bridge the financial gap during a time of recovery. Moreover, having a disaster plan can save your business at times of emergencies and unforeseen circumstances.

 

Establish a retirement plan

Having a company retirement plan is an excellent way to save money in the long run. A pension plan contributions could reduce current taxes and boost employee’s loyalty.

While there are few alternatives – 401k, SEP IRA, and SIMPLE IRA. I am a big supporter of 401k plans. Although they are a little more expensive to establish and run, they provide the highest contribution allowance over all other options.

The maximum employee contribution for 2016 is  $18,000. The employer can match up to $35,000 for a total of $53,000. Individuals over 50 can add a catch-up contribution of $6,000 for a total of $59,000 annual contribution.

Self-employed individuals can also take advantage of this option by setting up a solo 401k plan. Moreover, they can contribute up to $53,000, $18,000 as an employee of your company, and $35,000 as an employer.

 

Build a safety net

Creating a safety net is a critical step to protecting your wealth. Many business owners hold a substantial amount of their assets tied up to their personal business. By doing it, they expose themselves to a concentrated risk in one company or industry. Any economic developments that can adversely impact that particular sector can also hurt their personal wealth.

The best way to build a strong safety net is asset diversification. Owners can significantly decrease the overall risk of their portfolio when investing in a broad and uncorrelated range of assets, sectors, and regions.

 

Start your estate planning

Estate planning is the process of arranging the disposal of your assets after your passing. It further involves your family members, other individuals, and charitable organizations. Estate planning starts with setting up a family trust and personal will and can also affect financial, tax, medical and business planning. Additionally, you can use estate planning to eliminate uncertainties over the administration of a probate and to maximize the value of the estate by reducing taxes and other expenses. The ultimate goal of estate planning can be determined by your specific goals and may be as simple or complex as your needs dictate.

 

Plan for business succession

A successful business can impact various parties such as owners, employees, contractors, vendors, clients, landlords, and suppliers. Therefore, creating a business succession plan will ensure that all parties’ interests are met in the event you decide to discontinue your business or pass it to another person.  Moreover, a robust plan will address numerous tax and financial issues that will result from the succession. The complexity of the succession plan will depend on the size, industry, and legal status of your business.