What to Do with All the Money You Made?

In Tuesday’s blog we set out some of the great benefits you can get with your business. When you’ve got your own business you get far more than just a paycheck.

But lets say your financial needs are met, and you’re still finding you’ve got extra cash left over. What to do with it?

If you’re a smart business owner, you’re probably thinking of ways to invest that money to make it grow and work for you. One of the best and safest ways to do that is through your pension.

In today’s world, pensions are very different than they were/are for our parents. For starters, we’ve got a lot more choices. There’s IRAs, Roths, 401(k)s, SEPs, SIMPLEs, and so on. We’ve got more choice on what we invest IN. When you create a plan through your own company you aren’t bound by what your pension administrator says you can invest in. Self-directed investing should mean more than just picking a few mutual funds off the pre-approved list, right?

If you haven’t taken a look at a Solo 401(k) plan, for example, do yourself a favor and check it out. This is a brilliant plan for businesses with one owner, or spouse co-owners, and no full-time employees. It’s similar to a regular 401(k), in that what you put in is a deduction on your tax return. But it’s a truly self-directed plan. When it’s set up properly, the list of what you can invest in is far, FAR bigger than the list of what you can’t invest in. In fact, if you work with a great, progressive plan custodian, you can even find neat ways to use pension money to invest into your business, or into other businesses.

Plus the Solo 401(k) Plan has this nifty little add-on called a Solo 401(k) Roth Plan, which lets you run a Roth right alongside your regular plan. The Roth plan is funded with after-tax dollars, but everything you put in grows tax free and comes out tax-free. And, there’s no pesky income limits like there are with regular Roth IRAs. You can make as much money as you want and still be able to contribute to a Solo Roth 401(k) plan.

Yes, you could just pull the money from your company and invest it directly. But, to do that, you’ve got to pay taxes on the money as it comes out of the business and goes through you. If you’re in a 25% tax bracket that means every dollar is cut down to 75 cents before you even get started … and before you deduct state taxes, too. But do the investment through a Solo 401(k) plan, on the other hand, and you can use tax-deferred money instead. That means every dollar you invest in a project IS a dollar.

Here’s something else to think about. What’s in your pension is generally safe from creditors, safe from bankruptcy … safe from just about everyone. You can’t say that about your savings account.

In Chapter 25 (Benefits that Benefit You) of Smart Business Stupid Business, we’ve got more information on the different pension options available to you, and much more on the Solo 401(k) plan. Check it out! You may be surprised at what you can do with all the money you’ve made.