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Many people hear about the 59.5 requirement and respond with:
“I don’t want to tie up my money. I like having options.”
Thoughts on why even entrepreneurs should highly consider utilizing a Roth account.
“I don’t want to tie up my money. I like having options.”
Thoughts on why even entrepreneurs should highly consider utilizing a Roth account.
The Roth has a contribution max of $6k. That 6k can then be invested where it grows tax-free.
This means any income or capital gains are not taxed as they occur, as they would be in a taxable account.
For those gains to avoid tax, the owner must be > 59.5 to distribute
This means any income or capital gains are not taxed as they occur, as they would be in a taxable account.
For those gains to avoid tax, the owner must be > 59.5 to distribute
But, the 6k of contributions starts to form “basis” that can be pulled tax and penalty free at any time.
This allows the owner the flexibility they desire in case an opportunity comes up, while investing with a tax benefit, in case one doesn’t
This allows the owner the flexibility they desire in case an opportunity comes up, while investing with a tax benefit, in case one doesn’t
This creates a win-win scenario. And, even if you do pull the basis. The gains can stay in the account and continue to grow. You could also end up contributing to the account again down the road to help re-accelerate growth, which you likely should...
Why? A lot of owners end up relying on the sale of their business to fund retirement. Imagine if instead of needing to eek out every dollar in negotiations you could approach the sale knowing you had a comfortable tax free next egg to supplement the sale
The math: A simple 6k/year over 30 years at a reasonable 7% gets you half a million tax free. Add your spouse and you’re sitting on $1MM
Less stressful negotiations and likely better sale outcome
Less stressful negotiations and likely better sale outcome
“So I can get my money growing and have the option to pull it out? That does seem good. But I heard I make too much anyways.”
Enter the back door Roth. Which if you really want to learn about I suggest watching this video deep dive I did: Back Door Roth IRA
In summary, just about anyone can make the contribution, have their money grow with a tax benefit, and maintain flexibility.
Why would you not do it? I’d love to hear the other side! Let me know
Why would you not do it? I’d love to hear the other side! Let me know
