OppLoans: Retirement Alternatives to a 401(k)

OppLoans: Retirement Alternatives to a 401(k)

Article originally appeared on OppLoans.


Retire in something resembling style.

Throughout history, humanity has experimented with many different kinds of retirement plans. The earliest retirement plan was the “no-one-lived-past-their-30s” plan. While this had the advantage of not actually requiring any planning, it did not leave much time for relaxation.

Later, if legend is to be believed, putting the elderly out to sea on an ice floe gained some popularity. However, with arctic currently melting, this retirement plan is less viable than ever.

Since 1978 the 401(k) account has become a common solution for building retirement funds. 401(k) plans are investment accounts offered by employers as part of their benefits package. Employees can direct a small percentage of their pre-tax income into these accounts and their employer will match a portion of those funds.

But many jobs do not offer a 401(k). Perhaps your job does not. If that’s the case, how can you avoid being put out on the proverbial ice floe when you reach retirement age?


When you want something done right…

There are tax-advantaged retirement accounts you can open on your own that are separate from an employer-provided plan . You will not receive the benefits of that employer matching your contributions (unless you are remarkably persuasive), but it is likely better than nothing.

“Individual retirement accounts give anyone the option to save for retirement outside of an employer plan,” offers Sam, who writes about early retirement with her husband at How to FIRE. “You could open one at a brokerage firm like Fidelity or Vanguard. However, the IRS does have income requirements and contribution/distribution limits that you should be familiar with. Roth IRAs grow tax-free and traditional IRAs grow tax-deferred. If you are married and one of you does not work outside the home, you may even have the option for a spousal contribution.”


Property possibilities

If you want your retirement investments to be more tangible, you could consider putting money into property. Unfortunately, this will require you to have quite a bit of money already saved up. There are a few upsides if you can manage it, however.

“Rental properties complement stocks and more traditional retirement accounts extremely well,” says Brian Davis, co-founder of SparkRental.com. “To begin with, they generate ongoing passive income … Rental returns adjust for inflation automatically, as well. Not only do rents rise alongside inflation, they are a primary driver of inflation, and often rise faster than the broader inflation rate.”

While the money you put into the property will likely be subject to taxes, property ownership has its own sets of carve outs.

“They offer tax benefits, with every conceivable expense deducted from your profits,” Davis explains. “Even some paper expenses like depreciation are deductible. Taxpayers do not have to itemize their deductions to take advantage of these deductions, either – they come off your rental income before it is added to your adjusted gross income.”


Getting into the franchise game

Have you ever fancied yourself a business owner, but you just are not able to do it full time? Well you may be able to get into the franchise game as an investor.

“Most investors are unaware that you are able to invest in a full-time or semi-absentee franchise tax free and penalty free with the Rollover for Business Startups (ROBS) program,” says Kenny Rose, founder and CEO of Semfia. “A semi-absentee franchise investment can be owned while working full time and can both build equity and produce a significant income. These are an out-of-the-ordinary investment that can also be paired with with a [U.S. Small Business Administration] loan to leverage pre-tax funds.”

Rose says the best way to approach this type of investment is to selectively pick your marketplace and do your research to vet different brands. “Although most people hear the word ‘franchise’ and go straight to food, the best way to reduce market risk is to look into recession-resistant industries like haircare, automotive, and fitness,” he says.

One caveat to be aware of is the time commitment. Even though it may not require your full time attention, investing in a franchise is not a completely hands off endeavour.

“Unlike other typical 401(k) investments, franchises are not passive money earners,” Rose warns. “Even for a semi-absentee investment you will need to manage a manager for 5 to 15 hours per week. Newer trends for semi-absentee are for nonworking spouses and recent college graduates to handle overseeing the management with the franchise structure.”

One other risk of note about small business loans: Know that your personal credit may impact your ability to get a small business loan, and a small business loan can impact your credit report, as well. Always make sure you understand the ins-and-outs of taking out any type of personal loan or business loan before moving forward with a money-borrowing decision.


If all else fails…

You may not have access to a 401(k) through your job. You may not meet the requirements for individual tax-free accounts. You may not have the money to invest in property or a franchise. But you can still do your best to put away money for retirement.

“Saving for retirement can be intimidating when you know that there are penalties for distributing the money before you are eligible,” Sam says. “If you would like more flexibility with your money, consider opening a taxable account. You can still earmark the money for retirement, but also use it without penalty before your golden years. Just be mindful that you won’t have the same tax advantages that retirement accounts offer. Any option to get you saving is better than not saving at all.”

It is not easy to think about retirement while you are dealing with so many daily expenses. But if you can make it a habit to regularly put aside retirement money, it should make a big difference later on.


Contributors

G. Brian Davis is a landlord, personal finance writer, and co-founder of SparkRental.com, which provides free video courses and rental investing tools for landlords. He spends most of the year overseas, splitting his time between Abu Dhabi, Europe, and his hometown of Baltimore.
Sam blogs about personal finance and financial independence at How To FIRE. She uses her Bachelors in Finance and MBA degree to help others get control of their finances through budgeting, saving, investing, and side hustles. For more information, visit her @HowToFIRE.
Kenny Rose is the founder & CEO of Semfia, a franchise brokerage to provide education and guidance on investing locally through semi-absentee franchise ownership. Rose founded Semfia after working in finance at Merrill Lynch and also spending time in the franchise industry. He realized that people want to hold a franchise business as an investment and not a full-time job, but they can’t get past that pesky F-word. A graduate of San Diego State University’s Top 10 Financial Services program, he has appeared on ABC, in the Amazon Best Seller “More Than Just French Fries,” and has been a featured speaker for the U.S. Small Business Administration, Small Business Development Centers of America, and SCORE. Follow him @InvestLocally.

Top Alternative Investments to Consider for Your IRA

Alternative investments are increasing in popularity with savvy investors who want to diversify a retirement account. Not only does one gain tax advantages, but they provide a diversified strategy cushioning a portfolio when traditional markets are volatile.

See the full article Gold IRA Guide.

The Richer Geek Podcast Episode #07 : The “F” Word of Business Ownership with Kenny Rose

Semfia Founder & CEO Kenny Rose guest stars on The Richer Geek Podcast with host Nichole Stohler. The Richer Geek helps technology and other high income professionals find creative ways to build wealth and financial freedom.

In this episode we weigh the pros and cons of semi-absentee franchise investing for professionals who’d rather keep a full-time job and invest on the side.

·       Franchise investment benefits versus investing in the stock market

·       Four types of franchise industries that are recession-resistant

·       How your 401K can help you finance your first franchise investment

·       The most common mistake new franchise owners make when they invest in a franchise

·       Why the food industry is the LAST place you should look for a franchise investment

Top Tips

·       Don’t overlook the value of your 401K and the Rollover for Business Startups program – it can help you find the financing to get started.

·       Look carefully at your long-term investment goals – understanding those goals will help you determine the type of franchise you’re best suited to own.

·Stay away from what’s “hot” – focus on what’s good for you.

Resources:

www.semfia.com

www.quora.com

Rollover for Business Startups (ROBS)://fitsmallbusiness.com/rollover-business-startups-robs/

Is investing in a franchise worth it?

If you’re only thinking about fast food franchises, my answer on that subject can be found here (20k+ views):

(Photo by Justin Sullivan/Getty Images)

Is owning a fast food franchise worth the time and money invested?

Long story short, stay away from food.

Let’s talk about investing in franchises in general.

Is investing in stocks worth it?

Is investing in real estate worth it?

These would be equivalent questions to ask based on the long track records they all have of success and failure.

If you find the right opportunity, you’ll find franchising is the best way to own a business as you get to be your own boss or have an investment company and not be in business by yourself.

It’s a way to skip the first 5–10+ years of business ownership and avoid all of the pitfalls you wouldn’t have known. Paying a franchise fee is a way to get six to seven figures worth of trial and error and business knowledge from day 1.

There are franchises in over 100 different industries from food to fitness to clothing recycling to custom tailored suits…you get the idea.

How do you know it’s worth it?

After years of advising individuals on which franchise is the right fit for them, the ‘worth it’ factor typically comes down to two areas.

  • Happiness
  • ROI

Happiness

What are you looking for out of a business?

Would this be a way to diversify your 401(k) with an investment business where you manage a manager? Are you trying to do a full time change in career?

Do you want to manage a lot of employees or run a solo operation?

Is this a way to give back to the community by having a business that interacts with your city?

You really need to self-reflect on what you’d find fulfilling about a business, money aside, first or else you don’t know what you’re looking for to be worth it.

In franchising you’ll most likely be looking at industries you never considered before but will accomplish all of your other goals as long as you’re open minded.

ROI

This is usually the number one reason franchising is looked at as an investment option.

One of the first questions I’ll hear when introducing someone to a franchise concept is, “how much can I make?”

The Federal Trade Commission requires disclosure for all prospective franchise buyers and part of this disclosure is a section call Item 19 which is where they are allowed to make an earnings claim based on past performance.

This can be more detailed here:

Do franchises “guarantee” an ROI if their policies and procedures are followed?

Also remember that the amount of investment ≠ ROI, see more on that here:

What is the most profitable franchise in 2018?

The best way to find out is to actually research franchise brands that are a good fit from you. You’ll be able to hear from existing franchise owners and get to ask them if it’s worth it. If you speak to 5–10–20 owners and they all so no, then probably not. If they say yes, ask why and make sure you’d be happy in the same situation.h

Don’t forget to add CEO Kenny Rose on LinkedIn for future advice or if you have any specific questions and check out more of his answers on Quora.

To find out which franchises fit your long term goals, schedule 15 minutes with us in a few clicks.

24 Mistakes to Avoid When Starting a Franchise

Founder and CEO Kenny Rose was recently featured in FitSmallBusiness.com.

As originally appeared in FitSmallBusiness.

24 Mistakes to Avoid When Starting a Franchise

Semfia Featured on ABC 15

Semfia on ABC 15