As a business owner, most of your time and attention is on your business, and less about other assets. That makes sense, as most of your financial contentment will be won or lost by the success in your business.
However, by exploring assets outside of your core business, you can protect and compliment your business growth, driving your long-term financial stability.
Two typical areas include your participation in your Qualified Plan and Commercial Real Estate. In this article, we’ll explore these two complementary assets – why they are important and how they can significantly contribute to your overall wealth-building strategy.
Two Peculiar But Important Assets Business Owners Should Consider
Outside of your venture there exists additional opportunities to not only support your business goals but to build the wealth you desire, and need.
#1 The Addition Of Qualified Plans
First up are Qualified Plans. Qualified Plans are tax-advantaged retirement savings strategies that offer financial security in the later stages of life…for your employees and for you.
Now, hear us out, Qualified Plans are really great assets for your rank and file employees but aren’t always the BEST asset for business owners. There are only some instances where they could be.
Qualified Plans are a valuable offering for your employees, and they typically depend on them as their primary retirement vehicle. In fact, most employees will retire and their largest asset hopefully will be held in Qualified Plans. And while a business owner may retire with a qualified plan, the qualified plan is often not their largest asset. For owners, a qualified plan often takes a smaller place behind the business itself, commercial real estate, and other investments. Said another way, qualified plans are very important for employees, but not so important for you.
Before we go much further, there are instances when qualified plans do make sense for business owners, but it’s not always and all the time. As you’d expect, every business owner’s needs, tax situation, and future balance sheet is different.
With a Qualified Plan there are three things for the business owner to consider when it comes to building wealth:
Your Contributions Are Untouchable Until You Retire
Business owners like yourself typically bet on themselves, and feel that their business is their very best investment. With that being said, is $100k, for example, best tied up in a Qualified Plan for the next 15 years as an owner, or is there a better way to maximize this return? What if you need this cash flow along the way for a danger in the business or a business opportunity?
You likely already know the answer to that question…you WILL need that cash flow for something down the line. Probably sooner than you think, too.
Your Qualified Plan Match Isn’t Really A Match
When your rank and file employee opts into your Qualified Plan, a match for them is excellent. It’s your dollars. For you, the business owner,…it’s still your dollars. Your “match” is just you matching yourself with money out of your own pocket.
Seems counterproductive, doesn’t it?
Everything Is Relative
As mentioned earlier, an employee retiring with a Qualified Plan is a big deal, since it’s likely the employee’s largest asset. For you, the qualified plan is likely a minor asset. For an employee, they spend a lot of time reviewing their qualified plan investment decisions as retirement nears. Most of the time, business owners barely pay attention to how it’s invested along the way.
Why? Because everything is relative. Each person is paying attention to their largest asset. This may also mean that your qualified plan has a different positioning and role for retirement and legacy planning.
Why A Qualified Plan Might Not Be An Asset For Business Owners
The reality is a Qualified Plan is only right for a small number of business owners. As a business owner, you are often in the highest tax bracket possible, and you hope to remain in that bracket even after retirement. Therefore, the tax deduction today of a Qualified Plan contribution is really more of a tax deferment to the future. You are actually just kicking the ‘tax can’ down the road. To access your qualified plan funds in the future, dead or alive, you will pay taxes on the distributions.
More times than not, business owners are contributing to Qualified Plans 100% of the time, matching their own dollars, when their dollars might be better spent elsewhere.
This is likely because while setting up your Qualified Plan you were asked if you wanted additional tax savings. And your response…”yes!,” of course. Your opportunity to build more wealth here begins with redirecting those dollars:
- Reallocating the dollars to something more liquid
- More tax maneuverable in the future
Just because you’re offering a Qualified Plan for your employees, which you should, doesn’t mean you need to participate in your own plan.
With the right professional, you CAN make a Qualified Plan meaningful for the business owner but this asset really isn’t designed to do so.
#2 Acquiring Commercial Real Estate
Commercial real estate is a terrific way to build wealth. But not just any commercial real estate, real estate that you rent to yourself. Now, most rank and file employees don’t benefit from this asset but business owners most certainly do. Unlike your rank and file employee, business owners:
- Know who to rent to (hint, hint, yourself), and
- Need the tax deductions
We’re willing to bet that you are currently leasing your office space from someone. But, why can’t that someone be you? It can be and should be.
Owning your building and leasing it to yourself helps you build wealth in several ways:
- Building equity while paying the mortgage
- Real estate appreciation overtime
- Stability and predictability with your mortgage
- Tax deductions
- Rental income depending on the size or spaces in the building
- Additional financial leverage
Owning your office building is a win-win in your journey to building wealth outside of your business.
Start Building Wealth Outside Of Your Business
In the pursuit of your long-term financial success, opportunities for wealth exist beyond the confines of your core operations. You just have to know where to look.
Exploring your participation in your Qualified Plan and Commercial Real Estate are two compelling avenues for building wealth outside of your business.
By strategically incorporating these assets into your overall financial plan, you can enhance your financial resilience, create diversified income streams, and position yourself for a prosperous future.
Business owners will undoubtedly run into the opportunity to address these assets at some point in their business journey. Meet with an experienced business professional at Consolidated Planning to address your unique circumstances and business goals.
2023-166042 Exp. 12/2025
Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. The information provided is based on our general understanding of the subject matter discussed and is for informational purposes only.
This material contains the current opinions of Andy Brincefield and Consolidated Planning only. These are not the opinions of Park Avenue Securities, Guardian, or its subsidiaries.
