How Women Business Owners Can Save For Retirement And Reduce 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 [email protected].

Keri Pugh

Keri Pugh is a Wealth Advisor with Fusion Financial Group, an independent financial planning firm and fiduciary based in Denver, CO. Keri has over 20 years of experience in the industry, as both a financial advisor and Principal. She obtained a bachelor’s degree in Finance from the University of Northern Colorado and is an alumna with national sorority Delta Zeta. Keri holds a variety professional licenses, carries the esteemed mark of Certified Financial Planner (CFP®), meeting rigorous education and experience requirements in key areas of financial planning, as well as the designation of Accredited Investment Fiduciary (AIF®), a symbol of her dedication to upholding the fiduciary standard for clients. As a wife and mother to two young children, Keri is particularly drawn to working with thriving families and women. This is not only reflected within her practice but also in her regular sponsorship of the local PTA and volunteer work with the elementary school. Outside of the office, Keri enjoys traveling, skiing, and the Colorado great outdoors with her family. She often lines up movie marathons for the family and, in line with many clients, is a beginner golfer and a wine enthusiast. To learn more about Keri, 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