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- Retirement Planning for Entrepreneurs: A Simple Guide
Entrepreneurs build businesses. But many forget to build their own retirement plan. Without a 401(k) from an employer, you need a strategy. If you wait too long, you might end up working forever. This guide breaks down easy steps to retire rich. If you aren't looking to retire but still want to maximize your finances as an entrepreneur check out our complete guide to wealth management for entrepreneurs here. Why Entrepreneurs Must Plan for Retirement Unlike employees, entrepreneurs get no automatic retirement benefits. You must: Save for your own future. Use tax-smart investment plans. Balance business growth with personal wealth. Protect yourself from financial risks. Without a plan, you may run out of money in old age. But if you start now, you can retire on your terms. 5 Steps to a Strong Retirement Plan 1. Open a Retirement Account Entrepreneurs have powerful savings options: Solo 401(k) – Best for business owners with no employees. Max contribution: $70,000/year. SEP IRA – Good for business owners with employees. You can contribute 25% of net earnings. SIMPLE IRA – A low-cost plan for businesses with fewer than 100 workers. Defined Benefit Plan – Best for high-income earners. Allows the largest tax-deferred savings. Smart Savings Tips: ✅ Over 50? Make catch-up contributions to grow your money faster. ✅Contributions lower taxes while boosting wealth. ✅ Choose a plan based on income, business size, and future goals. Example: Lisa, a consultant, started saving $35,000 a year in a Solo 401(k) at age 35. She stayed consistent, never missing a year. By 60, with 7% average growth, her savings had grown to $2.7M. When she decided to retire, her investments provided $100,000 per year in passive income, allowing her to enjoy life without financial stress. Learn more about retirement accounts . 2. Invest Beyond Your Business Relying only on your business is risky. You need other investments. Where to Put Your Money: Stocks & Index Funds – Grow wealth with dividends and capital gains. Real Estate – Rental income covers expenses in retirement. Tax-Free Accounts – Roth IRAs and Roth 401(k)s let you withdraw tax-free later. Example: Mark, a restaurant owner, invested $500,000 in stocks and real estate over time. He purchased two rental properties worth $250,000 each and invested in low-cost index funds. By age 60, his rentals had appreciated to $1 million total, and his stock portfolio had grown to $500,000. With passive rental income covering 60% of his expenses, Mark was able to retire without relying on business income. Read about investment strategies . 3. Plan Your Business Exit One day, you will leave your business. A solid exit plan ensures you get paid well. Your Exit Options: Sell the business – Cash out to fund retirement. Transfer ownership – Pass it to family or employees. Merge with another company – Get paid while staying involved. Steps to a Smooth Sale: ✅ Get a business valuation so you know what it's worth. ✅ Structure a tax-friendly sale to keep more money. ✅ Plan early so you don’t have to sell in a rush. Example: Jake, a tech entrepreneur, built his company over 20 years. At 50, he worked with a financial planner to increase profitability before selling. At 55, he sold the company for $3M, keeping $2.5M after taxes. He reinvested the funds into stocks and annuities, creating a steady retirement income of $150,000 per year. Explore exit planning strategies . 4. Use Smart Tax Strategies Taxes can eat into your savings if you don’t plan well. Here’s how to keep more of your money. 3 Tax Moves for Entrepreneurs: Max out retirement contributions – Reduces taxable income today. Roth Conversions – Pay taxes now for tax-free withdrawals later. Deferring Income – Delay taking profits in high-tax years. Example: Sarah, a marketing agency owner, learned about Roth conversions in her 40s. She moved $500,000 from her traditional 401(k) into a Roth IRA in lower-income years. By 65, her Roth IRA had grown to $1.2M, and she never had to pay taxes on withdrawals. Because of this strategy, she saved $250,000 in future taxes, letting her keep more of her wealth. Learn about tax-efficient retirement planning . 5. Protect Your Wealth from Risk Your retirement savings need protection from lawsuits, business failures, and accidents. Shield Your Retirement Savings With: ✅ LLC or S-Corp – Keeps business debts from touching personal wealth. ✅ Asset Protection Trusts – Protects savings from lawsuits. ✅ Insurance Policies – Cover business risks so savings stay untouched. Example: John, a consultant, was sued for business-related issues. Luckily, he had set up his business as an LLC and had an umbrella insurance policy. His $2M in retirement savings stayed safe, and he continued to live comfortably in retirement. Without these protections, he might have lost half of his savings to legal fees. Read more about asset protection . Case Study A Tale of Two Entrepreneurs: A $7 Million Retirement Gap Meet James and Eric: Two Business Owners, Two Different Futures James and Eric both started businesses at 30 years old. James built a software consulting firm. Eric ran a construction company. Each made $250,000 per year. James planned for retirement. Eric didn’t. At 60, James had $7.6 million in retirement savings. Eric had $550,000 and had to keep working. Financial Metric James (Planned) Eric (Did Not Plan) Difference Solo 401(k) Savings $3.1M $0 +$3.1M Investment Portfolio $700K $0 +$700K Real Estate Value $1M $0 +$1M Business Sale Proceeds $2.8M $500K +$2.3M Total Wealth at 60 $7.6M $550K +$7M Let’s break down why. James: The Entrepreneur Who Planned for Retirement James knew his business wouldn’t last forever. He took four smart steps to secure his future. Step 1: He Used Tax-Advantaged Retirement Accounts He started a Solo 401(k) at 30. He contributed $25,000 per year, increasing to $35,000 after 50. His 401(k) grew to $3.1 million, assuming a 7% return. Step 2: He Built Income Beyond His Business He invested $10,000 per year in stocks and index funds. He bought two rental properties worth $250,000 each. His investments reached $700,000. His real estate grew to $1 million. Step 3: He Had a Business Exit Strategy At 50, he hired a consultant to increase profits. At 58, he sold 40% of his business for $1.5 million. At 60, he sold the rest for $2 million, walking away with $2.8 million after taxes. Step 4: He Used Smart Tax Strategies He converted $500,000 into a Roth IRA for tax-free withdrawals. He saved $300,000 in taxes by using Roth conversions and tax-loss harvesting. James’ Final Wealth at 60 Solo 401(k): $3.1M Investment portfolio: $700K Real estate: $1M Business sale proceeds: $2.8M Total Retirement Wealth: $7.6M James retired early, debt-free, and stress-free. His rental income and dividends covered his living expenses. Eric: The Entrepreneur Who Didn’t Plan Eric assumed his business was his retirement plan. He reinvested all profits back into the company but saved nothing. Step 1: He Ignored Retirement Accounts He never opened a Solo 401(k) or IRA. He missed out on 30 years of compound growth. If he had saved $25,000 per year, he’d have $3.1 million like James. Step 2: He Didn’t Invest Beyond His Business He never bought stocks or real estate. His only asset was his company. When business slowed, he had no backup income. Step 3: He Struggled to Sell His Business At 55, he tried to sell but couldn’t get his asking price. By 60, the value dropped to $700,000. After taxes, he walked away with only $500,000. Step 4: He Had to Keep Working Without passive income, he had to keep withdrawing savings. He delayed retirement until 67. He downsized his lifestyle to stretch his money. Eric’s Final Wealth at 60 Business sale proceeds: $500K Personal savings: $50K Real estate assets: None Investment portfolio: None Total Retirement Wealth: $550K Eric had to take a part-time job to cover expenses. The $7 Million Retirement Gap Financial Metric James (Planned) Eric (Did Not Plan) Difference Solo 401(k) Savings $3.1M $0 +$3.1M Investment Portfolio $700K $0 +$700K Real Estate Value $1M $0 +$1M Business Sale Proceeds $2.8M $500K +$2.3M Total Wealth at 60 $7.6M $550K +$7M James ended up $7 million richer because he planned ahead. Eric relied only on his business, which left him financially stranded. Lessons from James vs. Eric ✅ Start Early: Even small contributions grow over time. ✅ Diversify Investments: Never depend only on your business. ✅ Have an Exit Plan: A structured business sale brings security. ✅ Use Tax Strategies: Maximize retirement accounts and Roth conversions. ✅ Create Passive Income: Stocks and real estate provide stability. James' retirement planning allowed him to retire comfortably at 60, while Eric's lack of preparation forced him to delay retirement and struggle financially. By implementing the tax-efficient, diversified strategies outlined in this blog, entrepreneurs can ensure long-term financial security and avoid a retirement crisis. Want to start planning today? Contact us for a personalized retirement strategy . If you are a business owner who is looking to find a financial team that specializes in you, schedule a call, and talk with a Moment founder. Not sure what questions to ask, check out this video on 10 questions you should ask when interviewing a financial advisor. Get in Touch With An Advisor Frequently Asked Questions Here are some answers to questions I received frequently about this topic. Frequently Asked Questions (FAQ) – Retirement Planning for Entrepreneurs What is the best retirement plan for self-employed entrepreneurs? The best plan depends on your business and income. A Solo 401(k) is great for those with no employees. A SEP IRA works well for business owners with staff. A Defined Benefit Plan allows the highest tax-advantaged savings for high earners. How can I save for retirement while reinvesting in my business? Set aside a fixed percentage of income in a retirement account each year. Keep investing in stocks, real estate, or tax-free accounts to build wealth outside your business. Never put 100% of your money into the company. What tax benefits do entrepreneurs get for retirement savings? Retirement contributions lower taxable income. Pre-tax plans like Solo 401(k)s and SEP IRAs grow tax-deferred. Roth accounts allow for tax-free withdrawals in retirement. How do I retire if my wealth is tied to my business? You need an exit plan. Sell to an outside buyer, employees, or family. Use sale proceeds to fund retirement accounts. Avoid waiting until the last minute to sell. What’s the smartest way to invest for retirement? Don’t rely only on your business. Invest in stocks, real estate, and tax-free accounts. Build passive income streams like rental properties or dividend stocks for stability. Can I use a Roth IRA for retirement savings? Yes! If you make too much, use a Backdoor Roth IRA. This moves money from a traditional IRA to a Roth IRA for tax-free withdrawals later. A Roth Solo 401(k) is another option. What happens to my retirement savings if my business fails? If your business shuts down, your retirement savings stay safe. Solo 401(k)s, IRAs, and Roth accounts are protected. Never mix business and retirement funds. How much should entrepreneurs save for retirement? Aim to save 15-25% of your income. Build multiple income sources like stocks, rental properties, and dividends to reduce risk. What insurance helps protect retirement savings? Get umbrella insurance, key person insurance, and disability insurance. These policies protect you if your business suffers or you can’t work. How do I make sure my savings last in retirement? Use a 3-4% withdrawal rule to avoid running out of money. Keep a mix of investments for stability. Plan tax-efficient withdrawals so you keep more of what you saved. *Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.
- Tax Strategies for Business Owners: Maximize Savings and Minimize Liabilities
As a business owner, understanding and implementing effective tax strategies can be a game-changer for your financial success. Tax planning is not just about compliance; it’s about strategically positioning your business to minimize liabilities and maximize savings. In this comprehensive guide, we’ll explore key tax strategies, real-world examples, and actionable insights to help you navigate the complexities of the tax landscape. Looking for a full tax planning guide click here. Why Tax Strategies Matter for Business Owners Effective tax strategies can: Reduce your tax liability, leaving more capital for growth. Ensure compliance and avoid costly penalties. Align your business structure with your financial goals. Provide peace of mind during tax season. Tax planning is not a one-size-fits-all approach. It requires understanding your unique business model, industry, and financial goals. Key Tax Strategies for Business Owners 1. Choose the Right Business Structure Your business structure significantly impacts your tax obligations. The most common structures include: Sole Proprietorship : Simple to set up but subject to self-employment taxes on all profits. Partnership : Offers flexibility but shares similar tax obligations as sole proprietors. S-Corporation : Allows for tax savings through reasonable salary and dividend distributions. LLC : Offers flexibility in taxation (can be taxed as a sole proprietor, partnership, or corporation). Choosing the right structure requires evaluating factors such as income, business size, and long-term goals. Each structure offers unique benefits, but improper selection can result in higher tax burdens or compliance risks. Example : A graphic design business earning $150,000 annually saved $15,000 in taxes by transitioning from a sole proprietorship to an S-corp, leveraging salary distributions and dividend income. This change also improved the owner’s ability to invest back into the business and enhanced financial stability. Learn more about choosing the right business structure . 2. Maximize Deductions and Credits Business deductions and tax credits are powerful tools to lower taxable income. Some common deductions include: Home Office Deduction : If you use a dedicated space in your home for business, you can deduct related expenses. Vehicle Expenses : Deduct mileage or actual expenses for vehicles used for business purposes. Professional Services : Costs for accountants, legal advice, and consultants are fully deductible. Employee Benefits : Contributions to employee health insurance or retirement plans can reduce taxable income. Deep Dive: Specialized Deductions and Strategies Startup Costs : Deduct up to $5,000 in business startup costs during your first year of operation. Technology Expenses : Software subscriptions, website hosting, and cloud services are eligible deductions. Research and Development (R&D) Tax Credit : Particularly valuable for tech and manufacturing businesses. Example : A marketing firm offering a 401(k) match for employees reduced its taxable income by $30,000 annually while retaining top talent. By reinvesting the tax savings into advanced analytics tools, the firm improved client results and increased revenue by 10%. Discover tax deduction strategies . 3. Leverage Retirement Contributions Retirement accounts provide dual benefits: reducing taxable income and securing your financial future. Options include: SEP IRA : Ideal for small businesses and allows contributions up to 25% of compensation or $66,000 (whichever is lower). Solo 401(k) : For sole proprietors, combining employee and employer contributions up to $66,000. Defined Benefit Plan : Offers the highest contribution limits, suitable for high-income earners. Deep Dive: Tax-Deferred Growth Tax Advantages : Contributions are made pre-tax, reducing current-year liabilities. Compounding Benefits : Earnings grow tax-free until withdrawal, maximizing long-term growth. Plan Customization : Defined benefit plans allow owners to adjust contributions based on income fluctuations. Example : A boutique owner contributed $50,000 annually to a Solo 401(k), reducing taxable income while growing a retirement nest egg. Over five years, these contributions, combined with investment growth, added $300,000 to their retirement savings, ensuring long-term security. Explore retirement planning options . 4. Optimize Depreciation of Assets Depreciation allows you to deduct the cost of assets over their useful life. Key depreciation methods include: Section 179 Deduction : Deduct the full cost of qualifying assets (e.g., equipment, vehicles) in the year of purchase. Bonus Depreciation : Deduct up to 100% of the cost of certain assets in the year they are placed in service. Deep Dive: Types of Assets Eligible for Depreciation Real Property : Buildings, warehouses, and office spaces qualify for depreciation over 39 years. Equipment and Machinery : Depreciation over 5-7 years. Technology : Computers and software can often be fully deducted under Section 179. Example : A construction company purchased $500,000 worth of equipment and claimed $400,000 in bonus depreciation, significantly reducing taxable income. The savings enabled them to hire additional staff, improving project completion times and increasing revenue. Learn about asset depreciation strategies . 5. Manage Self-Employment Taxes Self-employment taxes (Social Security and Medicare) can take a significant bite out of your income. Strategies to manage these include: S-Corp Election : Pay yourself a reasonable salary and take the remaining profits as distributions, which are not subject to self-employment taxes. Maximize Deductions : Reduce net income by claiming all eligible business expenses. Deep Dive: Advanced Techniques Retirement Plan Contributions : Reduce taxable self-employment income. Health Insurance Premiums : Deduct premiums directly from self-employment income. Qualified Business Income Deduction : Small businesses may deduct up to 20% of qualified business income. Example : An IT consultant earning $120,000 reduced self-employment taxes by $10,000 annually by transitioning to an S-corp and optimizing deductions. This allowed the consultant to reinvest in professional certifications, increasing billable rates by 20%. Find out how to manage self-employment taxes . 6. Plan Quarterly Estimated Payments Avoid penalties and interest by staying ahead of your tax obligations with quarterly payments. Calculate estimated taxes based on: Expected income. Deductions and credits. Previous year’s tax liability (safe harbor rule). Deep Dive: Streamlining Payments Automated Systems : Use tax software to calculate and schedule payments. Review Regularly : Adjust payments quarterly based on income changes. Safe Harbor Rule : Ensure at least 90% of current-year taxes or 100% of prior-year taxes are paid. Example : A restaurant owner who struggled with quarterly tax payments implemented automated systems to calculate and remit taxes. This reduced stress, avoided $3,000 in penalties, and improved cash flow management throughout the year. Read more about managing estimated tax payments . 7. Take Advantage of Tax-Free Benefits Some business benefits are tax-free, reducing your tax liability while providing perks for employees and yourself. These include: Health Savings Accounts (HSAs) : Contributions are tax-deductible, and withdrawals for medical expenses are tax-free. Education Assistance : Cover up to $5,250 annually in employee education costs, tax-free. Commuter Benefits : Provide tax-free transportation or parking benefits to employees. Deep Dive: Additional Tax-Free Opportunities Dependent Care Assistance : Offer up to $5,000 annually in tax-free childcare benefits. Wellness Programs : Provide fitness subsidies or wellness programs as tax-free benefits. Adoption Assistance : Support employees with tax-free adoption reimbursements. Example : A software company offering commuter benefits and HSAs saved $12,000 annually in taxes while enhancing employee satisfaction. This initiative also improved employee retention by 15%, reducing recruitment costs. Discover more about tax-free benefit options . Real-World Case Study: Tax Optimization in Action Maria’s Tax Makeover Maria owns a growing e-commerce business generating $500,000 in annual revenue. Despite her success, she found herself overwhelmed during tax season and paying more than expected. After consulting with the Moment team, she implemented the following strategies: Restructured Business Entity : Transitioned from an LLC to an S-corp, saving $20,000 annually in self-employment taxes. Maximized Retirement Contributions : Opened a SEP IRA, contributing $40,000 annually and reducing taxable income. Leveraged Depreciation : Claimed $150,000 in bonus depreciation for new warehouse equipment. Implemented Quarterly Payments : Set up automated quarterly payments, avoiding $3,000 in penalties. Expanded Insights: By separating personal and business expenses, Maria identified additional deductions, such as $10,000 in home office and software costs. Her proactive tax planning also allowed her to reinvest $50,000 into marketing, which increased revenue by 15% the following year. She also worked with a financial advisor to develop a three-year growth plan, focusing on scaling operations efficiently. Outcome : Maria reduced her overall tax liability by $63,000 in the first year while improving cash flow and peace of mind. Tax strategies are essential for business owners looking to maximize savings and minimize liabilities. By choosing the right structure, leveraging deductions, and staying proactive with tax planning, you can significantly improve your financial outlook. Ready to optimize your tax strategy? Contact us today to schedule a consultation. Schedule a call with our team here . Selling your business can be exciting, lonely, and challenging all at once. Connecting your personal goals to your finances can be challenging alone. Business owners turn to Moment Private Wealth when they are looking for a financial advisor who has walked in their shoes. If you are a business owner who is looking to find a financial team that specializes in you, schedule a call, and talk with a Moment founder. Not sure what questions to ask, check out this video on 10 questions you should ask when interviewing a financial advisor. Get in Touch With An Advisor Frequently Asked Questions Here are some answers to questions I received frequently about this topic. Q: How do I know if my business structure is tax-efficient? A: Consult a tax advisor to evaluate your current structure and determine if transitioning to an S-corp, LLC, or another entity could provide savings. Q: What deductions can I claim as a small business owner? A: Common deductions include home office expenses, vehicle mileage, professional services, and retirement contributions. Q: How do estimated tax payments work? A: Calculate quarterly payments based on expected income and deductions to avoid penalties and interest. Q: What’s the difference between a SEP IRA and a Solo 401(k)? A: A SEP IRA allows contributions of up to 25% of compensation, while a Solo 401(k) combines employee and employer contributions for higher limits. Q: How can I reduce self-employment taxes? A: Consider electing S-corp status and taking advantage of deductions to lower your taxable income. Q: Are employee benefits like health insurance tax-deductible? A: Yes, contributions to employee health insurance plans are fully tax-deductible. Q: Can I deduct business travel expenses? A: Absolutely, expenses for flights, hotels, and meals related to business travel are deductible. Q: What’s the benefit of using a Health Savings Account (HSA)? A: HSAs provide triple tax benefits: contributions are deductible, growth is tax-free, and withdrawals for medical expenses are tax-free. Q: How does bonus depreciation work for my business? A: Bonus depreciation allows you to deduct the full cost of qualifying assets in the year they are purchased. Q: What’s the safe harbor rule for estimated taxes? A: To avoid penalties, pay at least 90% of the current year’s taxes or 100% of the previous year’s liability (110% for high-income earners). *Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.
- The Moment Guide to Selling Your Business
When that wire hits your bank account everything will change. Many believe this to be true when they sell their business. From my experience selling your business is often one of the most anti-climatic events for business owners. I would go as far as to say that for many owners it spins them into a place that feels like a rudderless ship in the ocean. Searching for the next big thing. Well, I am here to tell you that you can avoid all of that by answering 3 easy questions. In this blog, we are going to break down mistakes to avoid while selling your business. Already sold your business? Skip this blog and check out the blog we wrote on how to manage wealth for business owners after selling. The Guide to Selling Your Business Yes, all your problems can be avoided by answering these 3 easy questions. Here they are. What outcome are you looking to achieve? How will you spend your time? What to do with the money? Now that you know the questions. Ready for the answers? Lucky for you we have helped countless business owners answer these questions and enjoy a successful exit. Let’s check out the most common answers we see from business owners. What outcome are you looking to achieve? When there is a big change in life I always encourage families to think about the outcome they are looking to achieve. Outcomes allow you to tune out the noise and make the situation personal to yourself. It helps you tune out the investment banker telling you it’s a great multiple. It helps you tune out the attorney telling you these are great terms. It helps you tune out the CPA telling you that this deal will save you millions in taxes. All of the examples you just read are not outcomes. These are attributes of a deal. These are outcomes. I want to spend more time with my family. I want to secure my family's financial future. I am tired of going all in and want to take chips off the table. These outcomes we can solve with the attributes of the deal. Many people work in reverse order. Let me show you. A private equity company sneaks into your inbox on a regular basis for 2 years. Probing to get enough information to provide you with an unsolicited LOI. It arrives after a long quarter of problem-solving where you are left exhausted. After a quick review of the offer letter, you see a line that notes a 10x multiple. Your buddy just sold for 6x and immediately you are intrigued. After a quick review of your EBITDA on QuickBooks you determine this private equity company is going to write you a check for $20,000,000. Wow. That is a lot of money I should probably give them a call. This is not the best approach to selling your business. Let me show you how an outcome-based approach can help. After a long quarter full of problem solving you are left exhausted. You start contemplating what you want your life to look like moving forward. Quickly coming to the conclusion that the things you say you value are getting overlooked. Your Spouse Children Community But you also love what you do and have no desire to retire. This leaves you thinking is there a way to keep doing this and get back my time? After meeting with Moment Private Wealth to review the options to achieve this outcome it becomes clear that a strategic partner could help you get the outcome you desire. The decision is made that we need to focus on the right strategic partner vs the highest price tag. After all the outcome you want to get has less to do with the money and more to do with how you are spending your days. I will let you daydream about how this story ends. The goal in this story is that you understand approaching selling your business the traditional way is unlikely to get you the outcome you desire. You need to plan for the outcome you want. How will you spend your time? You can always make more money but you can’t make more time. I have yet to meet a successful business owner who doesn’t ruthlessly take care of their time. It is the most valuable resource you have and you must treat it accordingly. You have spent your entire life building your business. Day in and day out showing up early and staying late. Spending all of your TIME in one place. Now you magically have nowhere to go and all the time in the world. This often leaves business owners in a tough mental state. One day they are problem solving and the next day they are golfing 5 days a week. There is only so much golf that one person can play. So how do you avoid this trap? Coming up with a plan prior to selling the business. Let's look at a plan we recently implemented for a business owner. This owner decided that they wanted the outcome of their business sale to be giving back to the community and buying a property for his family. Legacy was of the utmost importance. Now we needed to whiteboard what “giving back to the community” meant. For them it meant serving on two boards of charities they were passionate about. Well, they weren’t on those boards today. This became a project they worked on prior to selling the business. Let’s make sure you can get on the board and spend time doing things you want to do with those charities. Their eyes were opened when they started meeting with people at the charity and realized quickly that there was money being used in ways they didn’t agree with. Back to the drawing board. They found two additional charities to get involved in that they loved. Turns out this took an entire year for them to work through this process and were grateful they didn’t sell their business before doing the proper research. The farm was an easier project. Why? They already owned the land and there was perpetual work that needed to be completed. Currently, they were outsourcing the majority of the work but they planned to move to doing it themselves. With time being the most valuable resource you ought to plan for how you will use it. Don’t jump into a deal without knowing where your time will be spent. What to do with the money? Shockingly most families struggle with what to do with the money. I firmly believe this is due to past experiences. You have heard this disclaimer in investing. “Past performance doesn’t guarantee future results.” Well, the opposite is true for past experiences with money. “Past experiences with money will predict future decisions with money” Let me show you what I mean. This client grew up in the 70s in a middle-class family. Both parents worked jobs to make ends meet. Although there was always food on the table there was never extra money lying around. Family vacations were road trips not first class. Now that you have $20,000,000 in your bank account you don’t magically become good at spending money. Rather we have seen the reverse be true. Fear that you will blow it all drives your decision-making. This is not a good outcome which is why we need to plan in advance and solve the math equations that are important to you. Remember what is important to you may not be important to your buddy who just sold his business. Just because he wants to charter a jet doesn’t mean that you should do the same. Planning for the money will give you confidence during your deal. Too many times business owners sell their business hoping that the money they will get will be enough. Sometimes it is and sometimes it isn’t. We help clients come up with a number. That number encompasses all of the outcomes they hope to achieve. - Giving their kids each $250,000 today. - Paying for the grandkids college. - Giving $1,000,000 to charity - Spending $50,000 a month to live their ideal life in retirement - Paying for health insurance before they reach Medicare at 65 All of these are math formulas that we can solve for you. Once we solve each math formula we add them together and subtract projected taxes and this gives us our north star. The north star is the amount of money you need to accomplish your outcomes. This gives crystal clear direction for how to approach your deal. It will give you the confidence to decide which deal is the right deal for you. Selling your business can be the highlight of your professional career. From experience the best way to make it that is to make sure you answer these 3 questions before you plunge into selling. What outcome are you looking to achieve? How will you spend your time? What to do with the money? There is no plan that is right for every owner, but there is a perfect plan for you. Not sure where to go from here? Schedule a call with our team here . Selling your business can be exciting, lonely, and challenging all at once. Connecting your personal goals to your finances can be challenging alone. Business owners turn to Moment Private Wealth when they are looking for a financial advisor who has walked in their shoes. If you are a business owner who is looking to find a financial team that specializes in you, schedule a call, and talk with a Moment founder. Not sure what questions to ask, check out this video on 10 questions you should ask when interviewing a financial advisor. Get in Touch With An Advisor Frequently Asked Questions Here are some answers to questions I received frequently about this topic. How much is my business worth? The value of your business is going to be determined by a number of factors. This will be determined by the amount of profit or EBITDA that your company generates on an annual basis multiplied by an industry multiple. Example = Profit x Multiple = Business Value $1,000,000 x 5 = $5,000,000. How to sell my business ? Selling your business is done best through an intermediary. These are financial professionals who help market your business. Depending on the size of your business this professional will be a business broker or investment banker. How much in taxes do I pay on my business sale? Businesses are taxed based on the terms of your deal. With the proper structure, deals are often taxed at long-term capital gains rates. These rates range from 0% - 20% in taxes. What is the cost of selling my business? The size of your transaction will determine the cost of selling your business. Intermediaries charge 5% - 10% of the transaction value to market and sell your business. They are worth their weight in gold. Who is going to buy my business? The buyers of business vary widely based on industry and company size. The most common buyers are strategic buyers and private equity. Strategic buyers are competitors in and around your industry who want to own your company. Private equity buyers will look to own your company for a period of time before reselling it at a higher price. *Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.
- Professional Athletes Guide to Spending
When it comes to money and athletes, the questions are endless. Yet there is one question that rises above them all. I would argue that the answer to this question is the culmination of every athlete wealth management question: “Am I good?” or said another way “Can I keep spending what I am spending?” You see professional athletes face a dilemma ~ they have the biggest advantage of all time (time on their side) and the biggest disadvantage of all time (lack of experience). Compound that with an earnings window that is nearly always shorter than an athlete realizes. I think about financial planning for professional athletes on a scale of 0-10. A zero is someone that shows up on ESPN 30 for 30 “Broke”. They spent everything A five is someone who isn’t broke but doesn’t have nearly the money saved they should. They spent too much. A ten is someone who can live the same lifestyle post-playing career. They are good (see our question above). In this blog, I am going to break down the athlete spending problem, the key numbers to know, and how to fix this for professional athletes. Let’s dive in… Professional Athletes - Key Money Numbers Managing money comes down to numbers but not the complicated ones you hear about. No, it comes down to simple numbers that anyone can understand. Consider if you only knew these five numbers: Your current savings rate (as a percentage). Your current spending rate (as a dollar amount). Your future desired spending rate (as a dollar amount). Your projected investment return (as a dollar amount). Your safe withdrawal rate (as a dollar amount). You see every strategy you implement (planning, tax, insurance, estate, and investments) should be helping you get close to the outcome you want to the questions above. Strategies are fuel to reach your outcomes. Yet most professional athletes implement strategies before defining a successful outcome. Consider this analogy ~ You need to buy a new car. Instead of thinking about all of the things you want to be able to do with the car, like: Travel the country Have enough seating Provide good storage space Drive well in harsh conditions You just walk into the car dealership, listen to the salesman pitch, and buy the car that looks cool. That is what I see happen time and time again with financial planning for professional athletes . We act without defining the outcome. We implement with no clear plan for success. We stress because we aren’t sure if those strategies will achieve the outcome. You see the loop this creates? Ok, so instead of doing that let’s consider what happens if we know the five key numbers above. 1) Savings Rate Your savings rate is the backbone of both your current financial picture and certainly your future financial picture. Now consider, traditional financial planning would say you should save 15% of your total income. What I will tell you is if you are a professional athlete and only saving 15% of your gross income you are in trouble. Consider this example: $1,000,000 Salary + 15% Savings Rate Taxes + Agent Fees = $500,000 Savings = $150,000 Spending = $350,000 The average professional athlete's career lasts 3 years. In the above example, you would have saved $450,000 and maintained a lifestyle that costs $350,000. So you have less than 1.5 years of savings to maintain your current lifestyle (yeah not good). Instead, do this ⬇️⬇️⬇️ The best financial decisions start with the end in mind. Said another way ~ you need to be thinking financially about your post-playing career just as your playing career is beginning. The question I want professional athletes to consider is this, “What do I want my future lifestyle to look like?” The more specific the better. Then take that number to your financial team and ask how much money would be needed to live that lifestyle. Only then can you start to understand what your saving percentage should be. ***For most professional athletes their savings percentage should be 50% - 80% of their take-home pay (after taxes and agent fees). You must think about this not just as a dollar amount but as a percentage of your salary. This will help to build the habit of saving more when you are earning more. Example: You decide to save 80% of your take-home pay. Year 1 take home = $1,000,000 Year 1 savings = $800,000 Year 10 take home = $10,000,000 Year 10 savings = $8,000,000 This reinforces a concept that I preach ~ Build your lifestyle slowly . Remember, the goal is to be able to answer the fundamental question, “Am I good?” 2) Spending Rate You see how I put the spending rate after the savings rate? That is intentional. Your spending rate is tied to your savings rate. We want to start with the metric that feeds everything else first. That metric is your savings rate. Nail your savings rate (as a percentage) and you will find yourself with spending guardrails already in place. The next step is determining if your savings rate supports your spending rate (as a dollar amount). I am going to let you in on a little secret ~ nearly no one knows what they are spending. There are two types of athletes when it comes to spending (and planning). Athlete 1: “The Over Spender” They think they are spending $20,000 per month when in reality they are spending $40,000 per month. Athlete 2: “The Over Saver” They are spending $20,000 per month but tell you to plan for $30,000 (just to be safe). Now look, I would rather see you are athlete 2 than athlete 1 but neither of these athletes are optimizing their money. The goal of money is this ~ To use as much as possible while not sacrificing for the things we have and need. Professional athletes, you have to know what you are spending in dollars to live your lifestyle. If you don’t know this number the next three numbers we are going to discuss are meaningless. You are trying to plan to buy a car but have no idea what you need your car to do. *** Pro-tip is to track your expenses through software like Monarch Money It is a great tool I have personally used and recommend. Now onto step ⬇️⬇️⬇️ 3) Desired Future Spending Remember how the average professional athlete's career lasts just three years? Well, the average professional athlete's career starts between the ages of 18-22. I have news for you, your life is going to change a lot from that time to when you are 30,40,50 years old. Yet, the decisions we make today will directly affect the lifestyle we are able to live then. So, we bridge that unknown by giving specific thought to what we want that lifestyle to look like. Yes, it will change....no this is not a perfect formula. Yet what I want you to do is take out a piece of paper and write down everything you think you want. A boat A millionaire dollar house Private school for your kids Yearly vacations for your family Make it specific and give serious thought to this. Remember when it comes to financial planning for professional athletes, the strategies we implement have to tie to the outcomes we are desiring. If we haven’t given proper thought to the outcome desired, how do you know the strategies are the right ones for you? Well…You don’t. So stop now, get your paper, and start mapping out your future life. Then take to your financial team and ask how much it would cost to live that life. Only then we can start talking more strategy ⬇️⬇️⬇️ 4) Projected Investment Return Investments are fuel for the outcomes you desire. Say it with me… “Investments are fuel for the outcomes you desire.” Back to our car buying example: If your desired outcome is to go 0-60 in less than four seconds ~ You don’t need an SUV you need a sports car. If your desired outcome is to tow your boat, haul your family, and drive across the country ~ You don’t need a sports car you need an SUV. Your investments should act the same way. Investing for professional athletes is a complicated topic full of decisions, yet at its core it is simple. Desired Outcome = Investments to Reach That Outcome So the number you need to know is your projected rate of return. Now look, no one has a crystal ball and I always recommend being conservative with your estimates but you still need a number. What you need to understand as an athlete is the more risk you take, the higher your expected rate of return (projected investment return) should be. What you need to decide is how much risk you want to take and combine that with how much risk you need to take. Take this example: Two athletes have a $10,000,000 portfolio. Athlete 1 is spending $200,000 per year Athlete 2 is spending $500,000 per year The investment return needed to reach the outcome desired of athlete one than athlete two. So before you choose any investments, you need to understand what return you need to achieve. After all, investments are simply fuel to reach your desired outcome. Now let’s tie this all together ⬇️⬇️⬇️ 5) Your Safe Withdrawal Rate To recap our journey so far, we know now: Saving Rate (%) Spending Rate ($) Future Spending Rate ($) Projected Investment Return (% & $) Now we have to determine can the amount of money we have saved support the lifestyle we want to live. You see when I say “safe withdrawal rate” all that means is how much can I pull from my investment portfolio and not risk running out of money. The hardest part of building wealth is building the initial snowball. As an athlete, you have an opportunity to do that in your 20s (massive advantage). Now we have to navigate keeping that snowball intact (for decades) while supporting our lifestyle. Traditional retirement planning leans on 4% per year. Example: A $1,000,000 portfolio could support pulling $40,000 per year in retirement. For athletes, this takes more nuance. You need to consider: Longer time frame League retirement benefits Future income opportunities (second career) Compound that with a natural family spending curve that says you will spend more money from ages 30-60 than 60+. Athletes, this is why I can’t stress enough the value of having an expert in athlete wealth management on your team. My goal for our athletes is: Not for them to die with the most amount of money To use their money to support the things that matter to them. Yet we have to balance that goal with decades of future spending, high spending years of 30-60, and income uncertainty. There is no perfect formula for professional athletes to find their safe withdrawal number. It varies by player…heck it varies by year for players. Yet what you should know is what that number is for you. Knowing that number and living a lifestyle that supports that number is the single best thing you can do to reduce anxiety around money. There are countless money moves to consider for professional athletes. Compound that with endless strategies and sales pitches, it can feel darn near overwhelming. Yet at its core, every professional athlete needs to answer one question, “Am I good”? To do that you don’t need a fancy strategy, one-off investment, or another shiny object. You need to know your numbers. You need a financial team that can guide you. You need to be thinking about the end at the beginning. If you do that, I assure you a ten-of-ten outcome is possible. Moment was built with a mission to ensure more athletes achieve a 10 out of 10 outcomes. Yet, to achieve that outcome...you need the right team to help you. If you are a professional athlete looking for help securing your financial future schedule a call with our team . Get in Touch With An Advisor Frequently Asked Questions Here are some answers to questions received regarding athletes and money: How do you determine how much to spend ? For us, this is an ever-changing process that starts with understanding current spending and working off of that as our baseline. What is the biggest mistake you see with sudden wealth? Without a doubt, it is spending before getting educated. The key is building a roadmap before building a lifestyle. What role does budgeting play in avoiding money mistakes? We find this to be critical both in providing guardrails for spending and giving one permission to spend on the things they value. How should professional athletes think about investing? We use the analogy that you have hit the home run and now the key is finding a way to consistently hit singles and doubles with your investments. Our number one goal is protection and staying in the game. What can professional athletes do today to avoid money mistakes in the future? The one number thing to do is build a plan and understand what it costs to be you. If the checks stopped today could you support your current lifestyle? *Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.
- How to Manage Cash Flow in my Business
Cash flow is the lifeblood of any business. It's what keeps the lights on, the employees paid, and the operations running smoothly. Yet, for many business owners, managing cash flow can feel like juggling fire one misstep and the whole thing can come crashing down. Whether you're running a small startup or a growing company, understanding how to manage cash flow effectively is critical to your success. Cash flow is one of the key factors in creating a higher valuation for selling your business. Check out our blog on exit planning for business owners if you are considering selling your business. This blog will break down everything you need to know about cash flow management, from understanding its importance to actionable strategies that can improve your financial stability. We'll also answer frequently asked questions about cash flow planning and how to stay on top of it. Cash Flow for Business Owners When diving into cash flow we are going to focus on three key areas. 1) What is Cash Flow? 2) Why is Cash Flow Management Important? 3) How to effectively manage Cash Flow? Keep reading to see the 7 actionable steps you can implement today. key areas. By implementing these strategies it will give you confidence that your business's cash flow is on the right track. What is Cash Flow? Cash flow is best described as money in vs money out. The tricky part about businesses is that this cash flow often doesn’t happen in a linear fashion. Managing cash flow includes protecting yourself from unforeseen situations like a client not paying or changing the terms of when they pay. In the purest form cash flow is broken into two potential positions. Positive Cash Flow : More money is coming in than going out. This means your business can cover expenses, reinvest, and save for the future. Negative Cash Flow : There’s more money going out than coming in. This could indicate financial trouble and prompt you to evaluate your spending or revenue strategies. The success of your business relies on maintaining a positive cash flow, which ensures that you have enough liquidity to meet financial obligations. Why is Cash Flow Management Important? Cash is king. It is the one thing every business needs to continue operating. Managing cash flow is essential for the survival and growth of a business. Poor cash flow management is one of the top reasons businesses fail. Here’s what proper cash flow management enables you to do: Meet Financial Commitments : Pay wages, suppliers, and bills on time without scrambling for extra cash. Plan for the Future : Growth comes at a cost. Planning for that cost in your cash flow improves your odds of success. Weather Uncertainty : A strong cash flow acts as a buffer during unexpected downturns or emergencies. Improve Creditworthiness : Lenders and investors favor businesses with stable cash flow when assessing loans or funding. Cash flow is fundamental to running a business. Whether it is creditworthiness or planning for the future you will need cash flow to accomplish it. Now how to manage your cash flow effectively. How to Effectively Manage Cash Flow Now that you understand its importance, let's explore actionable strategies to manage your cash flow effectively. 1. Monitor Cash Flow Regularly The first step to effective cash flow management is understanding where your cash is coming from and where it’s going. Use a Cash Flow Statement : Review your cash flow statement monthly to assess inflows and outflows. This allows you to spot trends and issues. Leverage Accounting Software : Tools like QuickBooks or Xero can provide real-time cash flow tracking and make monitoring effortless. 2. Create a Cash Flow Forecast A cash flow forecast helps you anticipate cash needs and avoid surprises. Project Future Income and Expenses : Include sales revenue, recurring bills, seasonal expenses, and any one-time costs. Scenario Planning : Run “what-if” scenarios to understand how different situations, such as delayed payments or a drop in sales, could impact your cash flow. 3. Optimize Payment Terms How and when you receive or make payments significantly affects your cash flow. Shorten Customer Payment Terms : Ask customers to pay invoices sooner by offering incentives for early payment. Negotiate Supplier Payment Terms : Work with suppliers to extend payment deadlines without incurring penalties. 4. Build a Cash Reserve A cash reserve acts as a safety net, ensuring you’re prepared for unexpected financial challenges. Emergency Fund: Aim to save at least 3-6 months of operating expenses as a reserve. Start small and gradually grow your fund as revenue allows. 5. Control Costs Regularly audit your expenses to identify and eliminate unnecessary costs. Distinguish Between Needs and Wants : Essential expenses should take priority over discretionary spending. Renegotiate Contracts : Look for opportunities to renegotiate supplier contracts at better rates. Cut the Fat : Subscriptions or services that are underutilized should be canceled. 6. Improve Inventory Management For businesses with physical stock, inventory management is directly tied to cash flow. Excess Inventory: Avoid stocking up unnecessarily, as excess inventory ties up cash. Inventory Monitoring: Use inventory management tools to find the sweet spot between meeting demand and minimizing storage. 7. Explore Financing Options Even with the best cash flow plans, unexpected expenses or opportunities can arise. Quick access to funds can make all the difference. Business Credit Lines : These need to be setup in advance to avoid a need. Banks love to provide loans when clients don’t need them. Short-term Loans : Often higher interest options than credit lines and should only be used in absolute emergencies. Invoice Financing : If possible this should be avoided but if needed it can be used as a last resort. These can act as helpful inflow sources when you're in a tight spot, but remember to use them judiciously to avoid debt traps. Managing cash flow in your business will always be the lifeblood of profits. Those profits will roll into meeting your personal financial goals. Connecting your business finances and personal finances can be challenging alone. Business owners turn to Moment Private Wealth when they are looking for a financial advisor who has walked in their shoes. If you are a business owner who is looking to find a financial team that specializes in you, schedule a call, and talk with a Moment founder. Not sure what questions to ask, check out this video on 10 questions you should ask when interviewing a financial advisor. Get in Touch With An Advisor Frequently Asked Questions Here are some answers to questions I received frequently about this topic. What is the difference between profit and cash flow? Profit is the amount of money left after deducting expenses from revenue, while cash flow measures the money moving in and out of your business during a specific period. A business can be profitable and still experience cash flow problems if it’s struggling to manage inflows and outflows.. How do I calculate cash flow ? Use the formula: Cash Flow = Cash inflows – Cash outflows You can gather this data from cash flow statements generated through accounting software or by manually reviewing income and expenses.. What is a good profit margin? A strong cash flow margin is generally above 10%. This means that for every dollar earned in revenue, your business generates at least 10 cents in cash flow. How often should I review my cash flow? The frequency depends on the size and complexity of your business. Most businesses benefit from reviewing cash flow monthly, while high-growth companies might monitor it weekly. What tools can help me with cash flow management? Accounting tools like QuickBooks, FreshBooks, and Wave offer real-time insights and automated cash flow reports. You can also use forecasting tools like Float for more advanced cash flow planning. How can I improve cash flow during a downturn? Focus on accelerating receivables, cutting non-essential expenses, and exploring short-term financing. Flexibility and resilience in financial planning are key. Why is a cash reserve important? A cash reserve provides a cushion for unexpected expenses or emergencies, helping you avoid financial strain or borrowing. Can cash flow issues kill a profitable business? Yes. Even profitable businesses can face insolvency if they don't have enough liquid cash to meet short-term obligations. How do I handle late payments from customers? Send reminders as due dates approach and follow up immediately if payments are overdue. Consider offering discounts for early payments or penalties for late payments. When should I seek financial advice? If you're experiencing persistent cash flow issues, major dips in revenue, or are unsure about your financial strategy, consulting a financial advisor is highly recommended. *Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.
- 5 Money Mistakes Pro Athletes Make
"How can someone blow all of that money?" Be honest, you have said it or thought it after seeing a professional athlete on the front page for poor financial decisions. Well here is how: You can do anything. You can buy anything. You can create the life you want. Yet that life will either be sustainable or could go up in flames when the checks stop. For professional athletes, the first three years will dictate much of the financial success achieved (or not) down the road. You see the athletes that retire in the best financial position are not always the ones that made the most amount of money. In fact, I would argue that the biggest indicator of future financial success can be traced back to the decision an athlete makes in the first three years of their career. Said another way, it is the ones that took wealth management as an athlete seriously. It is at that time when you feel invincible, the checks are coming in, and the end of your career is an afterthought that you need to understand the weight of your financial decisions. In this blog, I am going to walk through five money mistakes to avoid as a professional athlete. Professional Athletes - The Money Mistake We have all heard the stories and seen the stats of professional athletes losing money that they earned. Yet, what those stories don’t show is the initial mistakes many of those athletes made that later pushed them to financial ruin. Consider the analogy of a snowball being pushed up a mountain. Once it reaches the peak of that mountain just a gentle nudge will send it flying down the other side. That snowball can be a cascading effect of good money moves (and collect positive outcomes) or poor money moves (and collect negative outcomes). Seems easy enough right? Well, remember as a professional athlete you are coming into a lifetime worth of wealth at the age of 18-25. A time when money is plentiful but experience is limited. The thing to realize is that snowball is starting to build from day one. 5 Money Traps for Professional Athletes 1) The Yes Man A good agent can make or break your career. A good financial team can make or break your entire life. Sounds dramatic but it is the truth. The number one thing any athlete should consider when hiring their team is who are they hiring. No, I don’t mean their experience or expertise (that matters too), what I mean is who is the person. In the financial services industry you can break every down into two buckets: Those willing to speak the truth, even when it is uncomfortable. Those who are more concerned about losing a client than sharing the reality. Athletes, I urge you not to hire a Yes Man. Hire a team that is willing to speak the truth. You will have enough people telling you how great you are, you don’t need another echo chamber. 2) The Entourage No athlete does it alone. Countless people have been and will be a part of your journey. It is natural to want to bring them along for the ride and at a certain level I think you should. Yet like many things in life, this requires moderation. Paying for a dinner, great. Paying for every dinner, not so great. Paying for a trip, great. Paying for every trip, not so great. See the theme…I want our athletes to support the people that helped them get there. Just remember, it is far more enjoyable to support in a sustainable way (every so often) than an unstainable way (every time). 3) Buying vs Affording Consider the normal financial arc ~ entry-level job, increase income over decades, earn peak income in your 50’s and 60’s. Now consider that as an athlete you are earning a lifetime worth of income in typically less than a decade. The window is shorter. The checks are bigger. The decisions are magnified. You can buy nearly anything (see the big checks)…yet that doesn’t mean you can afford anything. I want you to consider two frameworks: The first is understanding the difference between rewards purchases and lifestyle purchases. One happens one time while the other can happen on an ongoing basis. The second is understand your fixed costs vs your flexible costs. Fixed costs are lifestyle costs that can’t be shut off tomorrow (housing, food, insurance, etc..). Flexible costs can be dialed up or down (travel, reward purchases, etc..). Nearly every athlete that ends up in financial trouble, built an unsustainable lifestyle. Said another way they built a lifestyle full of fixed costs that could not be unwound quickly enough. 4) Back-to-Back Homeruns You know that contract you signed for millions of dollars? That is your home run. The good news is you don’t have to hit another homerun. The bad news is you will be tempted at every turn to try to. The world of athlete investing has turned into a status game . Don’t believe me...just follow the top sports business news for a week and it will be littered with athletes making shiny new investments. Now look, on the surface there is nothing wrong with an athlete making a front page investment. Yet the issue arises when you as an athlete think your investments should look like Lebron James' investments. Lebron has made hundreds of millions on the court and even more than that off the court. His ability to take risks (on shiny investments) is higher than yours. For every athlete, the first goal of your investment portfolio should be to support your lifestyle post-playing career. To do that, you need to invest in a way to hit singles and doubles ~ not home runs. For a deeper dive into how to build these investments, you can read our guide on investing for professional athletes. You see, being on the cover of Forbes should not be the goal of an athlete. No, no, no… I would argue the goal of an athlete is to build an investment portfolio that supports your lifestyle, stacks the odds in your favor, and allows you to sleep at night. Now once you have done that (this requires specific planning for you) only then should you consider taking a swing for the fences. 5) Dunning Kruger Effect The single most common trait among professional athletes is self-confidence. Consider how many people have doubted you or your dreams. Yet time and time again you have provided them wrong. That self-confidence, while a prerequisite for success in the athletic arena, can be a double-edged sword when it comes to your money. In short ~ just because you are good at being an athlete doesn’t mean you are a good investor (at least at the start). The key here is taking a walk before you run approach, remember hitting singles and doubles is a recipe for long-term wealth. So check your ego at the door, put your question hat on, and start educating yourself on how you are positioning your money. My advice to all of our professional athlete clients is to have a laser focus on staying in the game. Consider the value of a dollar…now consider the value of that same dollar with additional decades to grow ~ a bit more valuable. Money doubles like this: Take 72 and divide it by your rate of return, let's use 8%. 72/8 = 9 years. For an athlete, that could mean 5 to 7 doubles for money invested in their 20s. $1M to $2M to $4M to $8M to $16M. Remember that snowball analogy? Well, if you can position that snowball to build (based on good money moves), you can create a life that far surpasses your expectations. Moment was built with a mission to ensure more athletes achieve a financial outcome they are proud of decades after their playing career ends. Yet, to achieve that outcome...the planning starts today. If you are a professional athlete looking for help securing your financial future schedule a call with our team . Get in Touch With An Advisor Frequently Asked Questions Here are some answers to questions received regarding athletes and money: How do you determine how much to spend ? For us, this is an ever-changing process that starts with understanding current spending and working off of that as our baseline. What is the biggest mistake you see with sudden wealth? Without a doubt, it is spending before getting educated. The key is building a roadmap before building a lifestyle. What role does budgeting play in avoiding money mistakes? We find this to be critical both in providing guardrails for spending and giving one permission to spend on the things they value. How should professional athletes think about investing? We use the analogy that you have hit the home run and now the key is finding a way to consistently hit singles and doubles with your investments. Our number one goal is protection and staying in the game. What can professional athletes do today to avoid money mistakes in the future? The one number thing to do is build a plan and understand what it costs to be you. If the checks stopped today could you support your current lifestyle? *Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.
- How to Save on Taxes With the Augusta Rule
Imagine you're sitting in a cozy living room, the aroma of freshly brewed coffee filling the air as a group of friends gather for their annual weekend getaway. One friend casually mentions how they saved a significant amount on their taxes this year using the Augusta Rule. Intrigued, you lean in, eager to learn more about this little-known tax strategy that could potentially save you money as a business owner. If you are interested in learning about other tax strategies you can find our tax planning for business owners blog here. In this guide, we'll explore the Augusta Rule. Augusta Rule for Business Owners The Agusta rule is a tax provision that can help business owners like you legally minimize tax liabilities. We will break down in this blog three areas. What is the Augusta Rule How Does the Augusta Rule Work Case Study of the Augusta Rule By the end of this article, you'll have a clear understanding of how to potentially benefit from this rule, making your business save money in taxes. Let's Dive in. What is the Augusta Rule? The Augusta Rule, named after the Masters golf tournament in Augusta, Georgia, is a unique tax provision in the United States Code. Originating from homeowners renting out their properties during the tournament, this rule allows homeowners to rent out their homes for up to 14 days per year without paying income tax on the rental earnings. This provision benefits those who live near major events and can capitalize on short-term rental demand. For business owners, the Augusta Rule offers a legal way to leverage personal real estate assets for business purposes. If you conduct business meetings or corporate retreats at your home, you can rent it to your corporation and deduct the rental expense. All while not having to report the income on your personal taxes. This use of the Augusta Rule can lead to substantial tax savings, making it an appealing option for small business owners and entrepreneurs. In order to fully utilize the Augusta Rule, it's crucial to comply with IRS guidelines. Here are the top three guidelines to follow. Transactions are at fair market value Keep Detailed Records of Activities on the Property Document Business Activities Conduced This ensures transparency and helps in case of any audits or inquiries from the IRS. How Does the Augusta Tax Rule Work? Understanding the mechanics of the Augusta Rule is essential for business owners aiming to capitalize on its benefits. The rule allows you to rent your personal residence to your business for up to 14 days per year at fair market value, excluding the rental income from your taxable income. This approach creates a tax-free income stream while your business can legitimately deduct the rental expenses. Follow these steps to implement this strategy. Step 1 - Determine the fair value of your property. This involves researching comparable rental properties in your area or consulting a professional appraiser. The key is to ensure that the rental amount is consistent with what you would charge an unrelated third party. Step 2 - Schedule business-related events at your residence. During the rental period, make sure to keep records of the business activities conducted on the premises. This includes meeting agendas, attendees, and any relevant business transactions. By maintaining \documentation, you can protect yourself in the event of an IRS audit. Step 3 - Keep your meetings under 14 days total for the year. It's important to note that the Augusta Rule applies only to rentals of 14 days or fewer per year. Exceeding this limit may subject the rental income to taxation. So now you know how the tax rule works let's look at a real-life example. A Case Study for the Augusta Rule. To illustrate the Augusta Rule, let's consider the hypothetical case of Sarah, a small business owner who runs a successful marketing agency. Sarah learns about the Augusta Rule and decides to explore its potential for tax savings. Step 1: Determining Fair Market Value Sarah researches to establish the fair rental value of her property for business use. After consulting local rental listings and seeking advice from a real estate expert, she determined that the fair market rental value for her home is $500 per day. Step 2: Scheduling Business Events Sarah organizes a series of business events at her residence, including client meetings, team brainstorming sessions, and strategic planning workshops. She carefully plans these events to not exceed the 14-day rental limit specified by the Augusta Rule. Step 3: Documenting Business Activities During each business event, Sarah maintains comprehensive records, including meeting agendas, participant lists, and notes on the discussions held. This documentation serves as evidence of the business purpose behind the rental arrangement and helps substantiate her claim for tax deductions. Step 4: Calculating Tax Savings By renting her home to her business for 14 days at $500 per day, Sarah generates $7,000 in rental income. Thanks to the Augusta Rule, she can exclude this rental income from her personal taxable income, and her business can deduct the $7,000 rental expense. Step 5: Realizing Tangible Savings By using the Augusta Rule, Sarah effectively saves approximately $2,100 in taxes, assuming a 30% combined federal and state tax rate. This tax-saving strategy now can be used to further grow her business. The Augusta Rule presents a valuable opportunity for business owners to legally reduce their tax burden while utilizing personal real estate assets for business purposes. By understanding the rule's intricacies, complying with IRS guidelines, and maintaining meticulous records, business owners can unlock significant tax savings. If you're considering implementing the Augusta Rule in your business, consult with a qualified tax professional to ensure compliance and maximize your potential savings. Tax planning will always favor those business owners who take the time to get educated and they combine that knowledge with the right team. If you are concerned about your tax team or want to get better educated about taxes reach out to our team below. If you are a business owner who is looking to find a financial team that specializes in you, schedule a call, and talk with a Moment founder. Not sure what questions to ask, check out this video on 10 questions you should ask when interviewing a financial advisor. Get in Touch With An Advisor Frequently Asked Questions Here are some answers to questions I received frequently about this topic. What is the Augusta Rule? The Augusta Rule, named after the Masters golf tournament, allows homeowners to rent out their properties for up to 14 days per year without reporting the rental income on their taxes. It originated from homeowners renting their homes during major events and has been extended to benefit business owners. How does the Augusta Rule work for business owners ? Business owners can rent their personal residences to their businesses for up to 14 days annually at fair market value, excluding the rental income from their taxable income. This creates a tax-free income stream, allowing the business to deduct rental expenses. What are the key requirements for utilizing the Augusta Rule? To utilize the Augusta Rule, it's crucial to establish a fair rental value for the property, schedule business-related events within the 14-day limit, and maintain detailed records of business activities conducted during the rental period. What are the potential tax savings with the Augusta Rule? By excluding rental income from taxable income and deducting rental expenses, business owners can achieve substantial tax savings. The exact amount saved depends on factors such as rental value, tax rates, and the number of rental days. Is there a limit to the number of rental days allowed under the Augusta Rule? Yes, the Augusta Rule applies only to rentals of up to 14 days per year. Exceeding this limit may subject the rental income to taxation, so careful planning and adherence to the 14-day limit are essential. How can I determine the fair rental value of my property? To determine the fair rental value, research comparable rental properties in your area or consult with a professional appraiser. Ensure that the rental amount aligns with what you would charge an unrelated third party. What documentation should I maintain for Augusta Rule compliance? It's essential to maintain thorough records, including meeting agendas, participant lists, and notes on business activities conducted during the rental period. These documents substantiate the legitimacy of the rental arrangements. Can the Augusta Rule be applied to other types of properties? While the Augusta Rule is typically associated with primary residences, it may apply to other properties, such as vacation homes or investment properties. Consult a tax professional to determine eligibility and compliance. Are there any risks or considerations with using the Augusta Rule? One consideration is ensuring that rental arrangements are at fair market value and meet IRS guidelines. Careful documentation is vital to avoid potential audits or inquiries from the IRS. How can I maximize the benefits of the Augusta Rule for my business? To maximize benefits follow these steps, plan business events strategically, adhere to the 14-day limit, maintain detailed records, and consult with a tax professional. By understanding the rule's intricacies, you can optimize your tax strategy and achieve significant savings. *Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.
- How to Navigate Sudden Wealth
Let me set the stage for you: I had no experience. I had no bank accounts I owned. I had barely enough money to buy Chipotle. And... Overnight I become a millionaire. This was my experience as an 18-year-old after signing my first professional contract. I remember celebrating with my family at a local ice cream shop and going to bed thinking, "Is this real?" Then I woke up the next morning and life (just like the day before) went on. So while on one end much of life felt the same, on the opposite end I felt an incredible sense of responsibility (and anxiety) not to mess this up. That is my experience with sudden wealth and since then I have helped dozens of athletes and entrepreneurs navigate this situation. It is the backbone of financial planning for athletes and entrepreneurs at Moment. In this blog, I am going to talk about how money affects us, things to consider with sudden wealth, and action items athletes and entrepreneurs can take to create positive outcomes. Sudden Wealth - The Problem Society as a whole is obsessed with money. On one hand, it makes sense that much of our world revolves around us trading money for things we need. On the other hand, it makes no sense how we will let relationships wash away, time evaporate, and spend every waking hour chasing the next dollar (even if we don't need it). Consider this ~ John D. Rockefeller whose net worth was once more than 1% of the United States GDP was asked how much money is enough. In which he responded, "Just a little more." Rockefeller died in 1937 but society hasn't changed much since then when it comes to money. Ask someone who makes $50,000 how much they need to earn to be comfortable and they will tell you $100,000. Ask someone who makes $100,000 how much they need to earn to be comfortable and they will tell you $150,000. It is ingrained in our society to think, just a little more. I share this as background to understand why sudden wealth can cause more harm than good. For many of the athletes and entrepreneurs we serve it is like walking into a gunfight with nothing more than a knife. Without education, the proper tools, and an action plan you stand little chance to see a successful outcome. Don't believe me just google "athletes going broke". Sudden Wealth - Education Sudden wealth is just that ~ sudden. For those navigating it, the money is coming in before they have even had a chance to process it. Let's compare two paths and the outcomes that follow: Path 1 - You have a typical earning arc reaching peak earning years between 50-60 years old. Over time you have made countless mistakes but their effect on your long-term financial security is minimal. The big mistakes happened with little money. Path 2 - You find yourself facing a big payout that could make up 90% or more of your lifetime earnings. The opportunity to learn along the way is void. The big mistake could happen with all your money. Every horror story you hear of someone losing it all started with someone thinking, "That will never be". The education on sudden wealth starts with understanding why it happens in the first place ~ No one thinks it will happen to them. I talk a lot about the power of compounding and as powerful a force as that can be in someone's favor it can be equally powerfully going against you. Compound spending and an unstable lifestyle can quickly rage out of control. Here are three tools I recommend for anyone navigating sudden wealth. Sudden Wealth - The Tools While there is seemingly an endless list of tools you could utilize to navigate sudden wealth, I want to give you three that anyone can use. The Everything List Before you spend a dollar one of the most powerful tools you can use is what I call "The Everything List". It only requires a pen and a piece of paper. Take your paper and write down everything that you think you want in the future. The more detailed and specific you can be the better. Example: Cadillac Escalade Summer Beach Vacations $1,000,000 House With a Pool The key here is to map out everything you think you want before ever spending any money. Once you do that take a step back and envision what that life with all those fancy things will look like. Is that what you want? If so, great...If not, look to refine. Then I want you to work with trusted resources (preferably a financial team) to map out how much that lifestyle will cost to buy and then afford. Remember, buying is a one-time cost and affording is an ongoing expense. Now let's take that list and add some checks and balances. The Budget (and accountability) That list you just built needs some numbers behind it. Let's assume you have enough wealth to both buy and afford the things on it. Step two is giving your money direction and permission to be spent on the things that are important to you. Here is the thing, while we hear the horror stories of someone losing sudden wealth, you don't hear about the many that don't maximize it. Money is a tool and the best tool in your garage going unused does no good. A budget done correctly gives you the freedom to spend on important things and avoid making the mistake of compound spending. Remember the old adage, what gets measured gets managed and this is certainly true when it comes to money. Now let's talk about how we take that sudden wealth event and get the snowball rolling. Building Income Streams The biggest advantage of sudden wealth is you get the snowball all at once. The biggest disadvantage of sudden wealth is you get the snowball all at once. Picture this ~ You are at the top of a mountain with the biggest snowball you can imagine. With one push it starts tumbling down the hill and without any other actions, it just keeps building momentum (and size). This is the opportunity anyone coming into sudden wealth has. You see the hardest part of building wealth is building the initial snowball. So our goal is to preserve sudden wealth ~ Said another way how can we keep our snowball while using the little bits of snow it shoots off? In finance, we call these income streams. Those income streams are sustainable as long as the snowball doesn't lose its momentum. So the key to this whole game is to understand how to position your money (the snowball) in a way to build income streams. For a deeper dive into how we think about investing money, check out this blog on investing for professional athletes . Sudden Wealth - An Action Plan Managed correctly sudden wealth is a surefire way to create generational wealth. Yet, the two most common outcomes are spending too much or living a life filled with financial anxiety. The good news is you can take action with the steps listed above to start your journey to a successful financial outcome. Step 1 - Get Clear On Your Goals Step 2 - Map Out The Total Costs Step 3 - Find Ways To Create Income Streams We started Moment to help athletes and entrepreneurs navigate sudden wealth. It is something that I have experienced firsthand and our team has helped countless athletes and entrepreneurs navigate. If you are a professional athlete or entrepreneur looking for help planning around sudden wealth schedule a call with our team . Get in Touch With An Advisor Frequently Asked Questions Here are some answers to questions received regarding sudden wealth: How do you determine how much to spend ? For us, this is an ever-changing process that starts with understanding current spending and working off of that as our baseline. What is the biggest mistake you see with sudden wealth? Without a doubt, it is spending before getting educated. The key is building a roadmap before building a lifestyle. What role does budgeting play in sudden wealth? We find this to be critical both in providing guardrails for spending and giving one permission to spend on the things they value. How should those navigating sudden wealth think about investing? We use the analogy that you have hit the home run and now the key is finding a way to consistently hit singles and doubles with your investments. Our number one goal is protection and staying in the game. *Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.
- Everything You Need To Know About NBA Pension (2024 Edition)
The 2024/2025 NBA season is upon us. Organizations are preparing for a season they hope ends in lifting the Larry O' Brien Championship Trophy. Priority one is winning games on the court. But players can also win off the court by understanding their benefits as professional basketball players. In this blog, I am going to breakdown the NBA's Pension Plan. NBA Pension Plan The National Basketball Association offers one of the best products in all of sports. With star athletes and high-energy games, the NBA is must watch tv. But behind the scenes, there is a significant focus on ensuring players are well taken care of after their careers come to an end. The NBA and NBPA have put together a package to support their players after retirement. There has been a big push from modern-era players to enhance these benefits. One of these benefits is the NBA Pension Plan . Before I dive in, it is important to understand all your benefits. Navigating retirement as professional athlete is hard enough. Our team at Moment Private Wealth is here to help. The History of the NBA Pension Plan Back in 1965, the National Basketball Association realized it needed to provide its players with benefits found in other professional organizations. With the MLB (1947) and NFL (1962) offering its players pension plans, the NBA followed suit. It began with the creation of The Collective Bargaining Agreement (CBA) in 1957. The CBA was created thanks to a threat of strike by Boston Celtics star Bob Cousy who was unhappy with player benefits. Since then, the NBPA and NBA have worked closely to agree to terms and conditions for employment in the NBA. The latest update came in April 2023 and runs through the 2029-30 NBA season. NBA Pension Eligibility Requirements Understanding your eligibility is the first step in taking advantages of the NBA Pension Plan. A signed contract does not automatically mean eligibility into pension benefits. In the NBA, you earn benefits based on "Years of Service." While not overly complex, "Years of Service" refer to the number of years you receive for your time in the NBA. In order to earn a "Year of Service" you must be listed on the NBA Active or inactive List at least one day during the Regular Season . The catch is you have to earn at least three "Years of Service" to qualify for the NBA benefits. NBA Pension Benefits Now that you understand eligibility requirements, what are your pension benefits as a NBA player? Before outlining these benefits, it is important to understand the latest NBA adjustments to its retirement dates and benefit calculations. Below are the latest NBA adjustments as of February 2nd, 2024: Normal Retirement Date: this is the first of the month following a player's 62nd birthday Early Retirement Date: players can retire on or after the month following their 45th birthday, but before the normal retirement date Benefit Adjustments: monthly benefits will be updated annually. This is based on the maximum amounts permitted under the Internal Revenue Code. These monthly benefits will also adjust based on cost-of- living increases. With these updates, the amount you receive in your pension depends on three additional factors: Years of Service Average Salary Age While these amounts vary, the NBA has made it a priority to provide fair values based on "Years of Service" in the league. As of the latest agreements, the minimum monthly pension benefit for players at normal retirement age is set at $1,001.47 for each year of credited service. This amount will increase based on your "Years of Service" and the time you begin taking the pension benefit. It is important to consult an expert in athlete wealth management to fully take advantage of your pension benefits. Pension Benefits for Two-Way Players Making it on a regular season roster in the NBA is no easy feat. With 15 players on each regular season roster, it is possible players may make the roster one year and play on the G League roster the next. Or further, they may be on both rosters the same year. Each NBA franchise can sign three players to two-way contracts. This means players can participate at both the NBA and G League levels during the same season. If this happens to you, the NBA Pension Plan will be amended. This means, for each regular season during the term, a two-way player is considered to be on a roster if he is: On Active, Inactive or Two-Way List (on February 2nd of Regular Season); or On the Active List of any team for 50% or more of total Regular Season games during the year This amendment allows Two-Way Players to be eligible for pension benefits and will receive compensation for their contributions. What Next? Your hard work on the court has awarded you benefits well into your future years. Why not take advantage of them? With the preseason starting this week, there is no better time than now to ensure you have reviewed your NBA benefits, particularly your pension plan. At Moment Private Wealth , we review the benefits outlined in the Collective Bargaining Agreement on your behalf and are happy to answer any questions you may have. If you are in the National Basketball Association and want to better understand the NBA benefits, schedule a call with a Moment Founder . Not sure what questions to ask, check out this video on 10 questions you should ask when interviewing a financial advisor. Get in Touch With An Advisor Frequently Asked Questions Here are some answers to questions I received frequently about this topic. How does a player q ualify for the NBA Retirement Plan? A player must have earned a minimum of three "Years of Service" to be eligible. H ave I earned a Year of Service? Players need to be on the NBA Active or Inactive List at least one day during the Regular Season. Am I eligible for the NBA Pension as a Two-Way Player? Yes! As long as you meet the requirements outlined above, you are awarded the same benefits as if you were on the NBA roster. What age can players take the NBA pension? Players can start receiving their full pension at the age of 45. If deferred until 62, the benefit significantly increases. ___________________________________________________________________________________________________________ *Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.
- The Most Common Estate Planning Mistake (Professional Athletes Edition)
One of the most critical pieces to success in professional sports is planning. Yet, the interesting part about that planning is you know that the game certainly won't go according to plan. In fact, a good game plan maps out specific situations based on certain outcomes of the game. Said another way, you want to plan for the inevitable unknown of the outcome. Your team could be leading down the stretch or could need a miracle comeback, your game plan better have the right levels to pull for each scenery. Well if we think about our money in the same mold, this is where estate planning for professional athletes plays a critical role in athlete wealth management . In this blog, I am going to break down the role estate planning plays for professional athletes and five biggest mistakes I see. Estate Planning for Professional Athletes Here is my best pitch as to why you should get estate planning done as a professional athlete ~ you already have a plan in place and you won't like it. You see everyone has a plan in place ~ The Government's One . Turns on that plan is littered with costs, publicity, and total disregard for what you want to happen. To revert back to our gameplan analogy that would be like putting a random fan in charge of your team's next gameplan. You still have a plan but it surely isn't optimal or going to get you where you want to go. So it is your choice, you create the plan or you stick with the government's plan. For today's blog, we are going to focus on five critical mistakes I see professional athletes make. If you want a deeper dive into the nuances of estate planning make sure you check out my estate planning guide for professional athletes . In that guide, we talked about how your estate plan is like a parking garage, where you get to put all of the things you care about. Come a big storm, your things are protected. Then picture if any of those things ever want to leave you have an attendant at the gate with a roadmap of where they should go. Come a time of change, your things have direction. A proper plan provides protection and direction of the things you care about. Yet to build the right plan, we have to avoid the common pitfalls that come with estate planning. Here are five ⬇️⬇️⬇️ Pro Athlete Mistake 1: Failing to Start It is hard to plan for the future much less create a plan for decades in the future. Well, Lord willing that is what you are doing with your estate plan as a professional athlete. You are planning for the day that you either can't make those key decisions or won't be there to make them. It is grim to consider but the number one mistake I see professional athletes make is assuming they should do this later. Well let me reframe your perspective on this ~ consider how hard you have worked to put yourself in the position you are in today. It is typically decades in the making. All of that work and the rewards can be misplaced in a second without proper estate planning. That means getting started today. Pro Athlete Mistake 2: Crack In The Foundation To revert to our house analogy, all houses (and estate plans) are not created equal. In fact of the dozens of estate planning documents I have reviewed, the vast majority need upgrading. This can be anything from: Changing names Adding additional details Updating your wishes and desires Putting in key elements for the next generation Your estate plan is a list of documents filled with names, wishes, and desires for all the things that matter to you. The reality of life is those names, wishes, and desires will change over time. You need to make sure you are working with a qualified financial team that is reviewing those documents. Our goal at Moment is to ensure that those documents continue to match up with a client's goals. Remember, don't build the house and fail to maintain it. Pro Athlete Mistake 3: Building Just One Level My first house was a one-bedroom apartment with my wife. It had all the features and space that we needed. Well, four kids later our house has two levels. Just as my needs progressed with my house, so can your estate planning documents. They can start with things like: Pour Over Will Health Care Directive Revocable Living Trust Financial Power of Attorney These building blocks can quickly turn into more complex structures like irrevocable trusts and generational planning. The key is ensuring your plan, investments, and future goals are relayed into an estate plan that matches those desires. Remember you might need a one-bedroom apartment or a five-bedroom two-story home. Pro Athlete Mistake 4: Set & Forget Forgive me for sounding like a broken record but this is not a set and forget it thing. No, you don't need to be reviewing this every quarter but each year you should be giving thought to any changes that need to be made. Remember done right these documents are your current thoughts on a lifetime's worth of work. To me, that is valuable enough to be reviewed each year. Pro Athlete Mistake 5: The Next Generation If you are anything like me, the single biggest factor in me playing professional sports was my ability to put the work in. Yet, that was innate. It came from seeing how hard my parents worked and the lessons that taught me. Many of our athlete clients, they have or are creating generational wealth. This means we need to be thoughtful about how our estate planning decisions (and the money involved) affect the next generation. For me, it is a balance of passing along wealth carefully while keeping the same values that made you the person you are today. This can be done through proper estate planning and the conversations that follow the document creation. Remember this entire estate planning process isn't about you, it is about everyone that comes after you. Estate planning is one of the most underutilized and misunderstood tools professional athletes have in their wealth management playbook. The key is ensuring you have a financial team that is a specialist in athlete wealth management . You want someone who understands the nuances that come with estate planning for someone 18-30 years old. You want someone who can take a complex legal term and explain it to you in a way that is easy to understand. After all, you have worked your entire life to put yourself in this position. The next step is planning for the inevitable time you pass those resources to the next generation. If you are a future or current professional athlete looking for help with estate planning schedule a call with our team . Get in Touch With An Advisor Frequently Asked Questions Here are some answers to questions received regarding estate planning for professional athletes: When should professional athletes get an estate plan ? We believe every athlete should understand the pros and cons of getting this in place today. What is the cost of core estate planning documents? Document creation costs between $3,000 - $6,000 but Moment also provides clients access to a tech platform at no additional cost to the client. This varies depending on the clients specifics need and complexities. Can you change your estate plan? Yes, the majority of documents (revocable trusts) can be changed at any time. You do not need to create a full set of new documents and instead can just make minor adjustments along the way. Is my information protected if I share it with an attorney? Yes as part of attorney client privilege, everything you share with an estate planning attorney stays between you and the attorney. This is especially important for high-profile public figures like professional athletes. *Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.
- Everything You Need To Know About NFL Pension (2024 Edition)
Pension plans used to be the most common retirement plan. Companies would pay its employers a salary with the promise of a pension once they retired. But the pension plan is becoming less seen today. The National Football League is one of the few employers that continues to include the pension benefit as a part of its retirement plan. In this blog, I am going to break down all the things players in the National Football League need to understand about the NFL Pension Plan in 2024. NFL Pension Plan "A pension plan...what is that?" Pension plans are becoming an afterthought. But the NFL has made it a priority to include in the NFL Retirement Plan . A pension plan is a retirement plan that provides income to employees after they retire. In simple terms, an employee receives a specific payment amount when they retire. So how does this work for NFL players? It starts with earning a "Credited Season." A Credited Season means you were on one of the following rosters for three or more regular or post-season games: Active Roster Inactive Roster IR (Injured Reserve) PUP (Physically Unable to Perform) Similarly, if you are released injured or receive an injury settlement for 3 or more games, you earn a Credited Season. From a Credited Season to Becoming Vested Earning a Credited Season is Step 1. Step 2 is becoming "vested." In order to be entitled to the NFL Pension Plan, a player must earn three or more credited seasons. Simply put, three or more Credited Seasons means you are now "vested." Think of it like levels to a game. First, you have to make the 53-man roster. Second, you have to be on said roster for 3 or more games. Third, you have to earn 3 or more Credited Seasons. These Credited Seasons open the doors to the benefits negotiated under the NFL's Collective Bargaining Agreement (CBA). NFL Pension Plan Specifics As an eligible player, it is important to understand the NFL Pension Plan specifics. Again, in order to be eligible for the NFL Pension plan, a player needs to have earned three or more credited seasons. To start, the NFL Pension Plan generally begins when a player reaches between the ages of 55 and 65. Once a player reaches retirement age, there are three factors impacting a player's pension benefits: How many benefit credits a player has earned When a player chooses to begin receiving retirement benefits The form in which a player chooses to receive his retirement benefits Benefit Credits In the NFL, each season a player plays fo r three or more regular or post-season games, they earn a credit towards their pension amount. Outlined below are the credits earned for each credited season a player is awarded: *Remember, you need 3 or more Credited Seasons to be eligible Credited Seasons Benefit Credit 1982-1992 255 1993-1994 265 1995-1996 315 1997 365 1998-2011 470 2012-2014 560 2015-2017 660 2018-2019 760 220-2030 836 These credits are then used to determine how much a player may receive for their pension. The average NFL pension is ~$43,000 per year as of 2023. When Is A Player Eligible For a Pension? As mentioned above, the NFL Pension Plan typically begins when an eligible player turns 55. However, these benefits can be paid at two different times: Normal Retirement Deferred Retirement Normal Retirement begins on the first day of the month beginning after a player turns 55. Deferred Retirement can begin on the first day of the month after a player reaches the age of 55. However, in deferring this benefit, the amount of a player's monthly benefit will be increased. This is because a player will be receiving a pension for a shorter amount of time. Regardless of when an eligible player chooses to receive his pension, he must be at least 55 years of age. How The Pension Benefit Is Paid When it comes to receiving the pension, a player has multiple options. These include: Life Only Pension Qualified Joint and Survivor Annuity Pension Life and Contingent Annuitant Pension Life and Ten-Year Certain Pension Life Only Pension The Life Only Pension is the most common pension plan chosen by NFL Players. This pension will provide equal monthly payments to an NFL player for their lifetime. Once a player passes away, this benefit ends regardless if a player has a family. Qualified Joint and Survivor Annuity Pension If a player is married, the Qualified Joint and Survivor Annuity Pension is most common. This plan gives a player a reduced monthly pension during the player's lifetime. However, when a player dies, the surviving spouse will receive 50% of the pension. Life and Contingent Annuitant Pension The Life and Contingent Annuitant Pension plan is similar to the Qualified Joint and Survivor Annuity. It pays a reduced monthly pension during the lifetime of a player. There is one difference. The amount depends on the beneficiary's expected lifespan. It also depends on the percentage the beneficiary will receive. A player can choose the percentage of the pension paid to the beneficiary. That can be anywhere from 1% to 100%. It is important to keep in mind if the beneficiary is not your spouse, parent, child, or dependent, the value of the benefits payable may change. Life and Ten-Year Certain Pension Similar to the other pensions, this option provides monthly payments for life. The difference with this plan is that 10 years of payments are guaranteed. If a player passes away young, the beneficiary will continue to receive the same monthly payments during the guaranteed time. Pension Protection for Family While it is never in the plan, it is important to understand what happens to a player's pension benefit if he passes away before reaching retirement age. The NFL continues to emphasize the importance of taking care of the family. With that, the NFL has created a Widow's and Surviving Children's Death Benefit. While not a pension plan, it does provide a pre-retirement death benefit to the spouse. The typical monthly death benefit for the widow and surviving children is $9,000. The $9,000 is paid to the family for the first 48 months following a player's death. This amount decreases to 50% of the player's benefit credits after those 48 months. The minimum that would be paid is $4,000. What Next? As hard as it may be to walk away from the game, the NFL has made it a priority to help players into retirement. This includes the NFL Pension Plan. The NFL Pension plan provides players with specific payment amounts when they retire. It is important to discuss the benefits with your financial team. At Moment Private Wealth, we help you create a plan with this benefit in mind, including how to budget as a professional athlete . I highly suggest checking out the NFL Retirement Plan (2024 Edition) . The NFL Pension is just one of the many benefits afforded NFL players. ___________________________________________________________________________________________________________ If you are in the National Football League and want to better understand the NFL Pension Plan, schedule a call with a Moment Founder . Not sure what questions to ask, check out this video on 10 questions you should ask when interviewing a financial advisor. Get in Touch With An Advisor Frequently Asked Questions Here are some answers to questions I received frequently about this topic. How many credited seasons are needed to be eligible for the Pension Plan? Each player must have earned 3 credited seasons to be eligible. At what age am I eligible for the NFL Pension Plan? Players can start receiving their pension at the age of 55. Do I have to start taking my pension at 55 years of age? No, a player has the option to defer payment. In doing so, the amount of the pension increases per year since a player will be receiving a pension for a shorter amount of time. Are there different Pension Plans I can choose from? Yes, there are multiple plans. Be sure to consult your financial team for the best option for you. Will my family be taken care of if something happens to me? Yes! The NFL has instituted a Widows and Surviving Children's Benefit. If the family is not included as beneficiaries in the Pension Plan, they will receive benefits via this plan. ___________________________________________________________________________________________________________ *Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.
- How to Reduce Taxes in Retirement (The Smart Way)
I recently sold my business and am moving to the lake for retirement. What are you most excited about in retirement? Half of my income isn't going to go to Uncle Sam. Not so fast...you will still pay taxes in retirement, but we can minimize those taxes. Tax planning for business owners is the foundation for paying less in taxes today and in the future. In this blog, we are going to teach you how to reduce your taxes in retirement. Reduce Your Taxes in Retirement One of the biggest misconceptions is tax planning is over once your income stops. Taxes will continue and tax planning should continue as well. Luckily there are ways to reduce those taxes in retirement. We are going to break this blog into two areas. Taxable income sources in retirement. Strategies to reduce taxes in retirement. In each section, we will look at the income sources you are facing and strategies to consider to reduce your taxes. Let's Dive in. Required Minimum Distributions (RMD) The first income source to be aware of is the most common. These are the RMDs from your retirement accounts. Let's first look at what an RMD is. Over the course of your life, you have likely contributed to accounts that allow you to defer taxes into the future. These accounts include the following: Traditional 401(K) Solo 401(K) Traditional IRA When you made a contribution to these accounts the government allowed you to take a tax deduction in that year. This is a common strategy we use for business owners with high incomes. The downside to these accounts is that eventually, the government wants their pound of flesh. The government will force you to take money out of these accounts at age 72. The amount is determined by two factors. How much money was in the account at age 72? What your age is? You will take the dollar amount in your accounts eligible for RMD and match it with this table. Let's look at an example of someone who is age 72. RMD assets on 12/31 of the previous year = $1,000,000 Age 72 Distribution Period = 27.4 RMD = $1,000,000/27.4 = $36,496.35 This will be the amount you are required to take out of your tax-deferred account in the upcoming year. This will be added to your taxable income for that year. Now before you get upset that you have to pay more taxes let's look at strategies to reduce your RMD. Qualified Charitable Distributions - Strategy 1 The first strategy to consider is a QCD. A QCD is a strategy that involves gifting your RMD to a charity of your choice. This is an excellent strategy to consider and here is why. When you gift a QCD directly to charity this will allow the income to never hit your tax return. In the example, we could give the entire $36,496.35 to charity and it would be as if we had no additional income. Roth Conversions - Strategy 2 The next strategy to consider is a Roth conversion. As a refresher, a Roth IRA and a Rraditional IRA have a couple of key differences. Roth IRA = Tax-Free Growth Traditional IRA = Tax-Deferred Growth Roth IRA = No RMD Traditional IRA = RMD Having more money in your Roth IRA is going to reduce your overall RMD tax liability. Many clients approaching retirement want to consider a Roth conversion strategy. This is the process of moving money from your Traditional IRA into your Roth IRA. When doing this you will pay taxes today on the dollars you move into your Roth, but you will eliminate any future taxes on these dollars. The earlier you consider this strategy the more impactful it will be. So the next time you fear your RMD consider these strategies. Portfolio Income One of the most common types of income in retirement comes from your portfolio. These are taxes owned on the investments within your accounts. Before we look at different strategies to consider it is key to understand how taxes work in these accounts. There are three basic types of accounts you can have in an investment portfolio. Each of these accounts will affect your taxes in retirement. Tax Deferred Accounts: 401(K)'s IRA's Sep IRA's Solo 401(K)'s Taxation: These are accounts that you will pay ordinary income on all money you take out, but by leaving the funds in these accounts you will defer all taxes. Tax-Free Accounts: Roth IRA's Roth 401(K)'s Taxation: These are accounts that grow tax-free and all distributions are tax-free. These are the best accounts to have assets in during retirement. Taxable Accounts: Brokerage Accounts Taxation: These accounts will be taxed along the way. Every decision you make in these accounts has immediate tax consequences. Now that we have an understanding of each type of account you could be drawing from let's look at the different strategies to reduce portfolio taxes in retirement. Asset Location - Strategy 1 The location of your investments is a key strategy for reducing your taxable income. Before we look at the best structure let's look at the taxes owned on investments. Bonds - These assets are part of your defensive strategy. The main benefit of a bond is that it will pay consistent income to you over time. This income will be taxed as ordinary income. Stocks - These assets are part of your offensive strategy. The goal of these assets is to appreciate over time. When you own stocks there are two ways to make money. The first is dividends from those stocks which will be taxed immediately. The second is capital appreciation or the position going up in value. To summarize there are two ways to make money on investments. Income - The money paid through interest or dividends throughout the year. Capital Appreciation - The money you make by an investment going up in value. Typically the most tax-efficient strategy is to place your income-producing assets in your tax-deferred accounts. This will allow that income to be generated on an annual basis to be deferred in the future. While your income-producing assets will be in your tax-deferred accounts your capital appreciation assets will be allocated towards your taxable brokerage and tax-free accounts. Typically this is best because we can control when we pay taxes on these positions. We would need to sell the position to create additional taxable income. Asset location is a strategy all individuals in retirement should discuss with their advisory team to ensure they have the right investments in the right accounts. Tax Efficient Investments - Strategy 2 This strategy will be focused specifically on your taxable brokerage account. After all most business owners in retirement have a significant amount of funds in these types of accounts. These funds may have come from saving money over the years or the sale of a business. In these types of accounts, there will be three forms of income. Interest from Bonds Dividends from Stocks Capital Gains from Stocks In retirement, it is key to have the right investments to minimize taxes. Interest from bonds can be either tax-free or taxable. Depending on your tax bracket will change what type of bond we should own. Taxable bonds will pay a higher return but that is only best depending on the overall tax bracket you are in. Dividends from stocks can be paid in two ways. Qualified dividends and ordinary dividends. Qualified dividends will be taxed at a lower rate than ordinary dividends. Most stocks can get qualified dividend treatment with the proper investment strategy. This could be the difference in paying 0% in tax on your dividends up to 37%. Capital gains from stocks are determined by the difference between your cost basis and your current value. The most important consideration is how long you have held these assets. Capital gains have two different classes. The sale will be treated as a short-term gain or a long-term gain. Short-term gain - Held for under 1 year. Long-term gain - Held for over 1 year. Now the important part. How are they each taxed? Short-term capital gains will get taxed as ordinary income with the highest tax bracket being 37%. Long-term capital gains are a different story. They receive special tax treatment and get preferential rates. When possible always sell assets at long-term capital gains to significantly reduce your taxes. Managing an investment portfolio in retirement is key to paying the minimum amount in taxes. The biggest mistake we see business owners make is ignoring taxes during retirement. There is no perfect strategy to fully reduce taxes, but there are many ways to reduce taxes. If you are a business owner looking to reduce your taxes in retirement we are here to help. Tax planning will always favor those business owners who take the time to get educated and they combine that knowledge with the right team. If you are concerned about your tax team or want to get better educated about taxes in retirement reach out to our team below. If you are a business owner who is looking to find a financial team that specializes in you, schedule a call, and talk with a Moment founder. Not sure what questions to ask, check out this video on 10 questions you should ask when interviewing a financial advisor. Get in Touch With An Advisor Frequently Asked Questions Here are some answers to questions I received frequently about this topic. Are you a fiduciary? Moment Private Wealth se rves clients as a fiduciary 100% of the time. How does Moment Private Wealth make money? We are only paid in one transparent way, by our clients. We receive no kickbacks or participate in any profit-sharing arrangements. Our fees are simple, transparent, and clear for our clients. How are you different than other financial a dvisors? We are specialists in working with professional athletes and business owners. We limit the number of new clients we take on. This allows us to provide unparalleled value and highly personalized service to professional athletes and business owners. We work as a team to service our clients. We believe in building a team of “A” players. This ensures our clients receive world-class tax, estate, insurance, and investment strategies. We focus on educating first, then executing. Where do you hold my investments and how can I see them? Moment Private Wealth uses Fidelity Investments as a third-party custodian for our client investment accounts. As a third-party custodian, Fidelity safeguards and provides reporting to you and the IRS each year. Clients can also access all financial information via the Moment Private Wealth Client Portal. How do you work with other members of my team? We believe in the power of the team. Our client teams consist of Moment Private Wealth, an accountant, an attorney, a banker, and an insurance specialist. We help our clients build out their team of individuals or work with existing partners clients have. Our goal is to ensure every family has a team of experts to protect their interests. What is the penalty for not taking my required minimum distribution? You will owe a 50% penalty on the amount that was supposed to be distributed from your retirement account. What is a required minimum distribution (RMD) ? Required minimum distributions are the amount the government requires you to take out of your retirement accounts at age 72. When you tax these dollars they will be taxed as ordinary income. How to pay less in taxes as a business owner? Taxes are going to be your largest lifetime expense. Our goal is to help you pay the least amount possible and never leave the IRS a tip. Our team of specialists understands this and works to reduce your taxes today and in the future. H ow do taxes work as a business owner? When you own a business you are going to get taxed in two ways. First, you will be taxed as an employee through the W2 wages you take from the business. Second, you will be taxed on the profits that your business earns. What are the best tax strategies for business owners? The best tax strategies can save you thousands if not millions in taxes. The best strategies will be specific to your needs and goals. Strategies most business owners consider take into account what they expect to make in income this year as well as in future years. *Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.
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CONTACT US
STAY CONNECTED
Become a part of the Moment community and join us in building enduring wealth and a legacy of impact.
STAY CONNECTED
Become a part of the Moment community for and join us in building enduring wealth and a legacy of impact.
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