By Gail MarksJarvis
If you have a small business and are still stinging from the income taxes you paid Uncle Sam, you can take a simple step now that will get you through tax time in better shape next year.
And this simple step will take care of one of the big mistakes small business owners tend to make: Failing to save adequately for retirement.
Entrepreneurs are often so busy tending their businesses they ignore retirement. Others simply put every cent they have into the business. That might be good for growing the business but not necessarily good for coming up with spending money in retirement.
It can also mean business owners end up paying more in taxes.
“Entrepreneurs need a balance between investing in the business today and investing in their future financial well-being,” said Lule Demmissie, managing director of retirement at TD Ameritrade.
Yet, 40 percent of self-employed people don’t save regularly for retirement and 28 percent don’t save at all, a TD Ameritrade national survey found.
Like employees, business owners can put money into a retirement savings account at work and take a tax deduction. Some savings plans allow you the flexibility to save a lot at times of plenty and cut back when cash isn’t coming as expected.
Ideally, your budget allows savings to automatically roll into an account each month. If your plan is to save what’s leftover, chances are it won’t be there. That’s true whether your business is making a lot or a little.
Consider the danger in waiting to save.
Imagine a self-employed 25-year-old putting $30 into a retirement account that invests in a total stock market mutual fund such as the Vanguard Total Stock Market Index Fund in a retirement fund that’s not taxed. Throwing $30 a week automatically into that fund will produce about $1 million at age 68 if the fund averages a 10 percent gain a year.