You should be — even if it’s decades away
Whether you’re a hungry young go-getter in the painting contractor world or a veteran who leaves most trips up the ladder to the younger set, retirement merits consideration as you conduct business.
“The answer to whether the time is right for a smaller-sized painting contractor to begin retirement planning is yes, no matter what stage of your working life you may be in,” says Dave Hoelke, a financial planner for Focus Financial in Minneapolis. “Even if you’re in your 20s, for example, when funds might appear to be better used on painting operations, a small regular contribution to a retirement plan will put you well ahead of the game as you age. Older ‘you’ will some day thank younger ‘you’ for doing so.
“That said, one size does not fit all when it comes to packaging a plan,” he adds. “Besides your age, the size of your operation and your overall financial condition are all factors that will help dictate the plan best suited for you.”
Hoelke says a retirement calculator (several are readily available via an internet search) can help identify customized savings targets and goals. Once you have a ballpark savings goal, there are several retirement plan options that make sense for smaller painting contractors or those who otherwise aren’t provided a retirement savings mechanism by an employer. The options, along with brief explainers, follow below.
Traditional or Roth Individual Retirement Account (IRA)
The draw of a traditional IRA for a painting contractor — especially a younger one — is its simplicity. Anyone can open an account, and many options are available via online brokerages. Under present tax law, you can contribute up to $6,000 annually ($7,000 if you’re over 50), and your entire contribution is usually tax deductible.
Additionally, you can roll an old 401(k) account into an IRA if you’re leaving a job to start up a business. It’s generally best to have retirement assets combined for visibility.
A Roth IRA is also a viable option, although the math shakes out a little differently. Contributions to a Roth IRA are not deductible, but withdrawals once you’ve retired are generally tax free. Please consult an accountant, financial planner or tax adviser for additional insight into the type of IRA that would be best suited for you.
If you’re a one-person shop (or employ no one other than your spouse), the Solo 401(k) might be for you. The higher contribution limits (which vary depending on your situation but can be up to $57,000) make it attractive for a contractor who might want to save a lot of money in a given year. It operates just like an employer-offered 401(k) in that contributions are pre-tax, and withdrawals after age 59 ½ are subject to taxation. There is more administration involved in a Solo 401(k) plan, but its benefits can be significant.
The Solo 401(k) is not available to contractors who have employees.
SEP (Simplified Employee Pension Plan) IRA
A popular choice for business owners with a few (or no) employees, the SEP IRA offers the potential advantages of a larger tax-deductible contribution than a traditional IRA allows. However, you must make contributions on behalf of any employee you may have that are equal (in terms of salary percentage up to 20%) to those you make on your own behalf. In other words, let’s presume you have a crew that includes you and three other workers. If you contribute 5% of your compensation (which could be wages or net business income) to a SEP IRA, you must also contribute an amount equal to 5% of respective compensation on behalf of each of your three workers.
A SEP IRA is generally easy to maintain (minimal paperwork), is flexible (you don’t have to contribute every year), and can be opened and managed via an online brokerage.
This article is intended to provide an overview of retirement savings plan options that would appeal to smaller painting contractors. Please consult an investment or retirement specialist before beginning your own savings plan. Larger painting contractors should consult industry specialists to tailor custom retirement savings and compensation programs for themselves and their employees.