Most successful business owners face a fundamental challenge: their balance sheet tells a story of strength, but up to 80-90% of that wealth can sit inside their company. That concentration creates power – and fragility.
You’ve built something remarkable. Your business generates solid cash flow, employs good people, and provides well for your family. But as you look toward an eventual exit, a nagging question surfaces: will your business transition actually fund the retirement you are looking forward to?
The gap between business success and personal retirement readiness is real. Only 20-30% of businesses taken to market actually sell, according to the Exit Planning Institute. Many owners discover too late that their wealth concentration leaves them vulnerable to timing, market conditions, and factors beyond their control.The good news? You don’t need to choose between business growth and retirement security. Four strategic moves can strengthen both your personal financial foundation and your flexibility as an owner – without derailing the business that got you here.
This guide outlines practical steps using 2025 rules and contribution limits. While these strategies apply broadly, your specific tax and legal choices should involve your CPA and attorney.
Build Your Personal Liquidity Runway (Before Anything Else)
Your first priority isn’t maximizing returns or optimizing tax strategies. It’s ensuring you’re never forced to sell company equity or liquidate investments at exactly the wrong moment.
Think of this as your financial shock absorber. When business cash flow hits a rough patch, or when personal expenses spike unexpectedly, adequate liquidity keeps you from making desperate moves that could hurt your long-term wealth.
Start by separating personal from business cash flows. Pay yourself a market-based salary that covers your household needs, then treat additional owner draws as profit distributions. This simple step clarifies what money is truly available for personal use versus what belongs to business operations.
Map your actual cash flows – owner salary, quarterly tax payments, insurance premiums, and irregular expenses like property taxes or vacation spending. Once you understand your real monthly burn rate, automate transfers to personal accounts on the same day your salary hits.
Your emergency fund target depends on your business volatility. As a rule of thumb, aim for 6–12 months of core spending if your industry is relatively stable; target 12–24 months if your revenue is cyclical or concentrated. This personal runway is a guardrail – don’t deplete it to accelerate low‑rate debt payoff.
Quick Action Checklist:
- Calculate your true monthly household expenses
- Open a dedicated personal emergency fund (separate from business accounts)
- Set up automatic transfers from business to personal accounts
- Target 6-24 months of expenses based on your business’s volatility
What to Fund First (Order of Operations):
- Personal emergency fund (6 months minimum)
- Employer retirement plan contributions
- HSA contributions (if eligible)
- IRA/Backdoor Roth contributions
- Taxable investment accounts
For a step-by-step worksheet that walks through cash flow mapping and savings priorities, download our Personal Financial Plan for Business Owners guide.
Max the Right Accounts
Choosing the wrong retirement plan can cost you thousands in lost tax benefits or unnecessary administrative complexity. The right choice depends on your team size, savings targets, and tolerance for ongoing management.
Your 3-Step Decision Flow
Step 1: Consider your headcount and spouse’s involvement
- Solo business (no employees except spouse): Solo 401(k) offers maximum flexibility and contribution room
- Up to 100 employees, prefer simple administration: SIMPLE IRA keeps paperwork light but caps contributions
- Have employees and want higher limits: Safe-harbor 401(k) with profit-sharing; consider Cash Balance overlay for very high savers
Step 2: Match savings target to age
If you need more than $70,000 annually in deductible retirement savings, or you’re in your late 50s trying to catch up, evaluate Cash Balance plans paired with a 401(k). These defined benefit structures can support much higher annual contributions for high-income, late-career owners.
If this feels like a lot, that’s normal. Your decision is mostly about team size, savings target, and how much admin you want.
Step 3: Consider features you value
Need loan access, Roth options, or mega-backdoor Roth capabilities? Stick with 401(k) or Solo 401(k) platforms. SEP-IRAs are employer-contribution only, which keeps things simple but gets expensive when you have staff.
Your entity type and compensation split (W-2 vs. distributions/K-1) affect how much you can contribute—coordinate the plan design with payroll and your CPA.
2025 Contribution Limits
Here are the key numbers for tax year 2025:
IRA (Traditional/Roth): $7,000 base + $1,000 catch-up (50+)
- Roth income phase-outs: $150,000-$165,000 (single); $236,000-$246,000 (married filing jointly)
401(k)/Solo 401(k): $23,500 employee deferral + $7,500 catch-up (50+) + $11,250 super catch-up (ages 60-63)
- Total contribution limit: $70,000
- Compensation cap: $350,000
SEP IRA: Up to 25% of compensation, maximum $70,000
- Compensation cap: $350,000
SIMPLE IRA: $16,500 deferral + $3,500 catch-up (50+) + $5,250 super catch-up (ages 60-63) Note: Applicable SIMPLE plans can have slightly higher limits when employers meet conditions laid out in the SECURE 2.0 act.
HSA: $4,300 (single)/$8,550 (family) + $1,000 catch-up (55+)
Defined Benefit (Cash Balance): Annual benefit limit $280,000 (enables much higher deductible contributions)
Quick Strategy Primers
Backdoor Roth for High Earners: If your income exceeds Roth IRA limits, contribute $7,000 to a nondeductible traditional IRA, then convert it to Roth. Watch out for the pro-rata rule if you have other traditional IRA balances, and report the conversion on Form 8606. The pro‑rata rule aggregates all your non‑Roth IRA balances – including SEP and SIMPLE IRAs – when determining the taxable portion of a conversion.
Cash Balance Plans in 60 Seconds: These defined benefit plans credit a ‘pay credit’ and an ‘interest credit’ to a hypothetical account. Employer contributions are actuarially determined and can allow much higher deductible savings on top of a 401(k). For a neutral overview, see the U.S. Department of Labor’s cash balance plan fact sheet.
SECURE 2.0 Roth Catch-Up Reality: High-earning participants will eventually be required to make catch-up contributions to Roth accounts only, but implementation has been delayed until 2026 as plans work through operational changes.
Mini Examples
Solo Owner, Age 56: You could combine a Solo 401(k) employee deferral (plus catch‑up if 50+), an employer nonelective contribution, an HSA (if eligible), and a backdoor Roth. Depending on employer nonelective contributions, total tax‑advantaged savings can range from the mid‑$40,000s up to the defined contribution 415(c) limit – before HSA and backdoor Roth amounts.
5-Employee Firm, Age 58: Compare a SIMPLE IRA (employee deferrals up to $20,000 with catch-up, employer match 2-3%) versus safe-harbor 401(k) with profit-sharing (higher employee limits, but higher employer costs) versus adding Cash Balance overlay (potentially $100,000+ in annual deductible contributions, but significant administrative complexity).
Reduce Fragility: Smart Debt & Investment Mix
Building wealth isn’t just about earning returns – it’s about reducing the chances that bad timing derails your plans.
Start with debt triage. High-interest consumer debt delivers a guaranteed “return” equal to the interest rate when you pay it off. Eliminating 18% credit card debt is equivalent to an 18% risk-free return. Prioritize these payments, but keep your personal emergency fund intact.
For lower-rate debt like mortgages or business loans, the math is more nuanced. Work with your CPA to understand which interest payments are tax-deductible (business loans typically are, personal mortgages have limitations) and factor that into your payoff versus invest decision.
Balance your business concentration. Outside your company, favor broadly diversified, liquid portfolios that don’t double down on your business’s economic exposures. If your company depends on local real estate markets, don’t load your personal portfolio with REITs.
This isn’t about predicting which investments will perform best – it’s about ensuring that your personal wealth doesn’t rise and fall with the same economic forces that drive your business results.
Start Exit Math Early (3-5 Years Out)
The most successful business transitions happen when owners start planning years before they’re ready to leave. This isn’t just about finding buyers—it’s about increasing the odds your eventual sale or transition actually funds your retirement plans.
Get realistic about exit probabilities. The Exit Planning Institute research shows only 20-30% of businesses brought to market actually complete a sale. Many owners discover late in the process that their business needs significant work to attract buyers, or that the after-tax proceeds won’t support their lifestyle expectations.
Work your readiness checklist:
- Clean, GAAP-quality financial statements going back at least three years
- Documented standard operating procedures that reduce owner-dependence
- Key contracts renewed and transferable
- Updated buy-sell agreements and clear entity structure
- Realistic projections of after-tax sale proceeds under different scenarios
You don’t need to predict the future – you just need guardrails that work if things take longer or sell for less.
Integrate exit planning with retirement planning. Model various “what-if” scenarios:
- Timing: What if the sale takes two years longer than expected?
- Valuation: What if you receive 20% less than your target valuation?
- Taxes: What if tax laws change?
How do these scenarios affect your personal spending plan and liquidity needs?
Starting this analysis early gives you time to strengthen weak areas, build alternatives, and avoid making rushed decisions when opportunities arise.
Your Next Steps: Sequence Matters
You don’t need to tackle everything at once. The key is getting the sequence right and building momentum with manageable actions.
Start with your personal liquidity runway—it’s the foundation everything else builds on. Once you have adequate emergency funds and cash flow systems in place, then optimize your retirement account strategy for 2025.
After your savings vehicles are humming, focus on reducing fragility through smart debt management and investment diversification. Finally, begin your exit planning process early enough to strengthen your business and explore alternatives.
Ready to map this out for your specific situation? Download our Personal Financial Plan for Business Owners guide. It includes cash flow worksheets, savings calculators, and step-by-step checklists to help you implement these strategies in the right order.
If you’d like help customizing these decisions for your business structure, tax situation, and exit timeline, we’re here to coordinate with your existing CPA and attorney team.
The most important step is the first one. Your future self will thank you for starting today.
