Gold bullion and retirement documents
It’s been a great year, and you are looking at your stack of invoices, your coffee-stained profit and loss statement, and your retirement plan. You could put some into a SEP IRA. It lowers your tax liability and saves you for the future. But what if you need the money next month when the business slows down? What if there is a big tax payment due soon?
Start with real profits and obligations
Usually, the first time you calculate your profits for the year is at the end of the year. All of your vendor payments have been paid, the shoebox full of receipts is empty, and you have a list from your accountant for things you need to look up before she can file.
Do not use the balance on your business checking account as a starting point for calculating your profits. Look at what really happened based on your records. You might have received a check from a client yesterday that you don’t have yet in your checking account. Or you might have received a bill for the repair of your equipment and it hasn’t been paid yet.
Business financial records
You can contribute the maximum allowed for your SEP IRA, which is based on how much eligible compensation you earned and the profit your business generated. The maximum amount you can contribute is determined by the type of entity your business is and various other factors, so consult your tax professional instead of guessing. It can be a bit difficult to determine the maximum contribution if your April tax deadline is approaching and you haven’t had time to go over all of your financial information yet because you’ve been busy all winter.
Payroll is in your desk drawer waiting to be made. Before deciding whether to make a retirement plan contribution, determine what you owe the government in taxes, what you owe employees for their paychecks, insurance premiums, rent, etc. If a bill is due, and you haven’t paid it yet, that should probably be prioritized before making a SEP IRA contribution.
What belongs in the $30,000 decision?
Let’s say that the maximum SEP IRA contribution you can make is $30,000. You have two options. You can invest the entire amount into your retirement plan where you currently have your money invested in mutual funds, bonds, or CDs. You can click the buttons to send the money to those investments. When your monthly statement arrives, you will have a new account balance and your investments will be listed in your portfolio. Your life will continue on as normal.
Or, you can decide to allocate part of the $30,000 to a gold IRA. This means that you will invest a portion of the $30,000 in a physical gold IRA. You can then continue to invest the rest of the money in your current investments.
There is additional paperwork required for a gold IRA investment, but the metals are stored in a secure facility by your custodian rather than hidden in a safe next to a stack of old tax returns. Your choices for gold investments might be more limited than when you buy stocks online.
The question is whether you think gold will do better or worse over the next ten years. That decision will depend on whether the owner can weather the seasonally lower sales cycle, wait until the accounts receivable rolls in, or afford a door repair that shakes the hinges just enough to make noise in the office.
Verify the rules and protect business cash
Gold bars and coins
A gold IRA usually has three components: an account with a custodian, a transaction with a dealer, and a qualified storage facility. There are forms involved in each part, and the small print may be more important than the pictures of gold bars or coins in the brochure. Certain custodians have minimum account balances. Storage often carries an annual fee. Transaction costs may be based on the number of purchases and sales. Segregated storage may carry a higher price.
Before sending the money to the custodian, request a written summary that includes:
Just because something has a shiny gold finish does not mean it qualifies as a gold IRA investment. Rare coins and other collectibles can be difficult to sell and may carry a large premium. The product description on the order form should specify an approved investment grade bullion coin or bar prior to depositing the money.
It is easy to see why one might be tempted to use a business bank account for an IRA contribution at the end of a successful year. The year-end balance is strong, there is a tax deadline coming up, and an IRA contribution seems like a good way to handle both tasks simultaneously. Then the major customer delays payment until the following quarter, or a major job does not get started until the spring, and suddenly the owner is monitoring the bank balance carefully before paying each vendor bill.
Business cash reserve planning
A business needs its own reserves for operations. The upcoming quarterly tax payment, payroll expenses, software renewals, vendor deposits, and maintenance bills should be paid with cash on hand instead of dipping into the IRA for an early withdrawal. In most cases, the IRA assets cannot be easily converted to cash, and it could take days or weeks to receive the proceeds, depending on market prices.
A good rule of thumb is to contribute to the retirement account only from cash that remains after the other short-term liabilities have been identified and scheduled. A simple calendar that shows the upcoming months that are historically low revenue months is often more practical than a pie chart showing ideal asset allocation.
Contributing to a SEP IRA and purchasing bullion are distinct actions, even if they occur on the same day. Determine how much to contribute with the assistance of a CPA. Read the terms and conditions provided by the IRA custodian. Compare the available cash with the amount needed to cover all the business expenses that will arise over the next few months.
Write down all the upcoming tax due dates, regular payroll cycles, and seasonal low periods before making the IRA transfer.
