Retirement & Sole Proprietorship
A sole proprietorship gives individual owners a simple way to run a business without much regulation from outside agencies. As the sole proprietor, the business begins and ends with you. Upon retirement, a sole proprietorship generally ends because the owner with whom it is associated leaves. Preparing for retirement by planning the end of the business and saving money is key for sole proprietors.
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Retirement Plans
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Sole proprietors have options for individual retirement plans to save money for the future. An individual 401k is a tax-deferred, tax-deductible plan for sole proprietors that allows for a large contribution each year. For example, in 2009, an individual could put up to $49,000 into the plan. People 50 or older have a catch-up option that allows them to put more into the account. A SIMPLE IRA is another option that has a catch-up provision, but the total contributions allowed are lower. An SEP IRA is another type of plan that is possible for sole proprietors. In 2009, this plan allowed for up to $49,000, depending on your net self-employment income. You may contribute up to 20 percent of this amount.
Wrapping Up Business
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Because the business is not a separate entity from you, you cannot simply pass it on as you could other types of businesses. Before you retire, you need to wrap up loose ends with your business. From a customer service standpoint, you need to finish projects and fill open orders for your existing customers. You also need to let them know about your retirement and subsequent closing of the business. Suppliers and other business contacts also need to know about the closing. On the financial end, you need to work with your creditors to pay off money owed. If anyone else owes you money, contact those people to get your payments. You should also pay your own outstanding bills, such as utilities and bills to suppliers.
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Selling Assets
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Once your personal obligations are settled, you can sell off the assets of your business, if desired. Equipment is a prime example of an asset you can sell to another business owner. For example, if you own a small bakery, you might sell the commercial ovens, mixers and pans that you used. If you own the building in which your business is located, you have the option of selling the building and equipment together.
Retirement Planning
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Create a time line for your retirement years in advance, if possible. This gives you time to set aside enough retirement money and plan for closing the business. If you have outstanding debts for the sole proprietorship, use the planning time to figure out how you will pay them. This is an ideal time to meet with a financial planner who can review your financial information and make recommendations for a comfortable retirement.
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