Retirement and Transition Plans

Managing your retirement accounts and assets

Plan to keep your income predictable even after officially leaving your business.

Published: June 11, 2019
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While transitioning your business to a new owner, you may also be preparing for retirement. Here's a guide to how various retirement accounts work, other potential sources of retirement income, and what steps you should take to protect your assets. Plan to keep your income stable even after officially leaving your business.

Types of retirement accounts and key features

Individual 401(k)

  • Available to a business owner and his or her spouse (who receive earned income from the business), that does not have any employees
  • Business owners can make a combination of employee pre-tax contribution through salary deferrals and employer contributions (profit sharing and/or match)
  • Contributions and earning generally are not subject to federal or state taxes until distributed. The method and form of distribution options available will be determined based on the plan document.

Traditional 401(k)

  • Available to businesses of all sizes
  • Employee pre-tax contribution through salary deferrals and employer contributions (Profit sharing and/or match)
  • Contributions and earning generally are not subject to federal or state taxes until distributed. The method and form of distribution options available will be based on the plan document.

Simplified Employee Pension Plan (SEP-IRA)

  • Available to businesses of all sizes, even sole proprietors
  • Only the employer contributes on behalf of all employees that meet eligibility requirements
  • Contributions and earning generally are not subject to federal or state taxes until distributed; normal IRA distribution rules apply to SEP IRA distributions.

Savings Incentive Match Plan for Employees (SIMPLE IRA)

  • Available for businesses with up to 100 employees
  • Employees can make pre-tax contribution through salary deferrals; employer is required to make matching or non-elective contributions
  • Contributions and earning generally are not subject to federal or state taxes until distributed; distributions taken within the first 2 years of SIMPLE IRA participation could be subject to a 25 percent premature distribution penalty (if younger than age 59 and a half).

Profit-sharing plan

  • Available to businesses of all sizes
  • Only the employer contributes on behalf of all employees that meet eligibility requirements. The method and form of distribution options available will be based on the plan document.
  • Contributions and earning generally are not subject to federal or state taxes until distributed

Other sources of retirement income and key features

1. Social Security

  • Reduced benefits available at age 62
  • Full benefits at retirement age, depending on birthdate
  • Increased benefits if you postpone first payment
  • Annual cost-of-living adjustments based on inflation 2. Annuities
  • Monthly earnings guaranteed when you give a lump sum to a financial institution
  • Provides a predictable income stream
  • Protected by state insurance guaranty associations 3. Part-time employment
  • May temporarily reduce Social Security benefits if you work and claim benefits before reaching full retirement age
  • After retirement age, you can earn as much as you want while still receiving full Social Security benefits

Steps to protect assets and what to know

1. Long-term care insurance

  • Covers expenses not covered by Medicare, such as a nursing home, assisted living, or in-home care
  • Start researching in your 50s or early 60s, before premiums rise sharply
  • Look for an independent agent who markets policies from multiple companies 2. Financial power of attorney
  • Gives someone legal authority to make your financial decisions if you’re no longer able to do so
  • You can change or cancel your representative as long as you’re able to make decisions
  • Your representative must be someone you trust to have access to your financial information and accounts 3. Asset protection trust
  • Available in a number of U.S. states
  • Can shield assets from creditors in a lawsuit
  • Should be established with the help of an attorney
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