According to Elisabeth Cullington “Entrepreneurs need to realize that their worth -- and financial future -- is predicated on their personal assets’ ability to generate income,”
Two ways to improve your income from your assets are as follows
If you have more than 20 employees, you have enough to safely set up an employee stock ownership plan (ESOP). While this is technically an employee benefit, it’s also one of the most tax-effective ways for a business owner to tap into equity without losing majority control of the business
Think of it as a partial sale -- but instead of outside investors, your employees essentially become your partners. The Pros: You’ll free up cash that can be reinvested (oftentimes tax-deferred indefinitely) to further expand your personal assets
, your employees will have an incentive to work harder and you’ll still have a job. The cons: They’re complicated and expensive to set up, there’s an annual fee to maintain them and they can only be used in C or S corporations, not partnerships.
Solo-preneurs and owners with a handful of employees should look into a defined-benefit plan. This is a modified pension plan that enables you to take out chunks of cash (for some, up to $210,000) from your business’s net profits each year. And it’s tax-free because the IRS views your contributions as business expenses.
How it works:
A formula determines the income
needed to replace your current salary when you call it quits. Required annual contributions are then set for you. The shorter the period to retirement, the more you are allowed to save.