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How Solopreneurs Can Leverage Qualified Plans to Save on Taxes

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For solopreneurs, financial planning often takes a backseat to the day-to-day grind of growing a business. However, smart tax planning and retirement savings are absolutely necessary to reach your full potential. Robert Glycenfer, CFBS, a qualified plan specialist, shared actionable strategies tailored to solopreneurs. Whether you’re just starting your business or looking to optimize your existing financial plans as a fractional, Robert’s insights will help you reduce taxes, grow savings, and secure your financial future.

Unique Financial Challenges That Often Face Solopreneurs and Fractional Professionals

Solopreneurs face distinct obstacles that can hinder financial stability and growth, including:

  • Lack of Financial Diversification: Reinvesting all profits back into the business might feel like the right move, but it creates unnecessary risk by putting all your “eggs” in one basket.
  • Inconsistent Contributions: Variable income can disrupt regular savings habits, making long-term planning harder.
  • Neglected Personal Planning: The focus on scaling a business often overshadows critical personal financial and retirement planning.

Diversifying financial strategies, including the use of qualified retirement plans, is a key step to mitigating these risks and achieving long-term financial stability.

The Advantage of Starting Early: The Power of Compounding

One of the greatest assets in financial planning is time. Consider this example:

  • Person A begins saving $10,000 annually at age 25 and stops after 10 years.
  • Person B waits until age 35 but saves $10,000 annually for 30 years.

Despite saving less overall, Person A retires with more savings due to the compounding effect of early contributions. The lesson? Start saving early and stick with it—small, consistent contributions can have an enormous impact over time.

Qualified Plans for Solopreneurs

There are two main types of qualified plans that solopreneurs can leverage:

Defined Contribution Plans

These plans offer flexibility and are based on income. Popular options include:

  • 401(k): Contribute up to $23,000 annually (2024 limits), with additional “catch-up” contributions available for those over 50.
  • SEP IRA: Ideal for solopreneurs without employees, with contribution limits up to $69,000 in 2024.
  • SIMPLE IRA: A cost-effective alternative with lower administrative burdens, suitable for small businesses.

Defined Benefit Plans

For solopreneurs with high incomes, defined benefit plans allow for the highest potential tax deductions. These plans target a retirement fund amount (e.g., $3.6 million at age 62), with contributions reaching up to $300,000 annually. This makes them a powerful tool to reduce taxable income while building significant retirement savings.

Maximize Tax Credits and Minimize Costs

The Secure Act 2.0 has made retirement plans more accessible by introducing several tax credits, including:

  • Startup Tax Credits: Up to $5,000 annually for the first three years.
  • Employer Contribution Credits: Matching contributions can be credited up to $1,000 per employee.
  • Automatic Enrollment Credit: A $500 credit for plans with automatic enrollment features.

These incentives can significantly offset setup and administrative costs, making it easier for solopreneurs to start saving.

Managing Retirement Risks

Robert emphasized planning for two critical risks in retirement:

  1. Longevity Risk: The risk of outliving savings is mitigated by proper planning and diversified investments.
  2. Inflation: Even a 2% inflation rate can reduce purchasing power by 40% over 20 years. Investments that outpace inflation are essential for maintaining financial security.

Action Steps for Solopreneurs

If you’re ready to take control of your financial future, here’s where to start:

  • Begin retirement planning as early as possible, even with small contributions.
  • Explore tax-advantaged plans like SEP IRAs, 401(k)s, and defined benefit plans.
  • Work with a financial planner to align your retirement goals with your financial situation.
  • Take full advantage of tax credits to minimize costs and maximize savings.

Financial planning isn’t just a necessity—it’s an opportunity to create lasting stability for both your business and your personal life. By leveraging tax-saving strategies and qualified plans, you can achieve financial security while still focusing on growing your business. The earlier you start, the bigger the payoff will be.Want access to more expert insights like these? The fCMO Community connects fractional professionals with exclusive sessions, masterminds, and practical strategies to help you grow your business and secure your financial future.

About Robert Glycenfer:
Robert Glycenfer, CFBS, is a financial planner with over 13 years of experience. Specializing in tax-saving strategies and retirement planning for solopreneurs and small business owners, Robert provides tailored advice to optimize financial outcomes. To learn more, visit The Financial Guide or contact him directly at rglycenfer@financialguide.com.

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