Brad Rhodes: Annuities for small business owners: A 2025 retirement strategy

By Brad Rhodes

Small business owners often face unique hurdles when it comes to retirement planning. Instead of relying on employer-sponsored plans, they frequently reinvest profits back into their businesses, sometimes at the expense of personal savings. While many dream of selling their business to fund retirement, the reality is that such sales aren’t guaranteed and may not yield the expected funds. This is precisely where annuities can step in, offering a crucial layer of financial security.

While annuities are commonly associated with individual investors, they can also be owned by business entities like corporations or partnerships. The key is that a living person must be designated as the annuitant within the contract.

Key considerations for 2025:

• Tax treatment differences: It’s important to understand the tax implications. Annuities owned by individuals generally enjoy tax-deferred growth, meaning you won’t pay taxes on the earnings until you take withdrawals. However, for business entities, annuities are typically classified as “non-qualified” by the IRS. This means their growth is generally subject to ordinary income taxes annually as it’s earned, rather than being deferred. This difference in taxation is a critical factor for business owners to consider.
• Guaranteed income for life: Despite the immediate taxation on entity-owned annuities, they provide a powerful benefit: a guaranteed, predictable income stream for life. This can significantly supplement your Social Security and other savings, offering invaluable peace of mind and helping to bridge any retirement income gaps.
• No contribution limits (Unlike Qualified Plans): Unlike traditional qualified retirement plans such as Solo 401(k)s (which have a total contribution limit of up to $70,000 for 2025) or SEP IRAs (also up to $70,000 for 2025), annuities have no IRS-mandated contribution caps. This flexibility allows business owners to invest substantial amounts at once, providing a robust vehicle to build a personal pension.
• Principal protection: Many types of annuities, like fixed-indexed annuities, offer protection for your principal from market downturns. This means your initial investment is safeguarded, providing stability and reducing anxiety, especially during volatile economic periods.
• Optional benefits for enhanced security: Annuities often come with optional add-ons, known as riders, which can provide additional benefits like long-term care coverage, disability income or death benefits. These features can offer extra layers of personal and business protection, providing comprehensive security for you and your family.

For small business owners, annuities aren’t just another investment; they’re a strategic tool for creating a more predictable and secure retirement. Even with the different tax treatment for entity-owned annuities, the benefits of guaranteed income and principal protection are highly valuable.

Are you curious how an annuity might fit into your unique business and personal financial situation for 2025? Consider consulting with an annuity specialist who understands the intricacies of business ownership and retirement planning.

Brad Rhodes, a native North Carolinian, is a member of Syndicated Columnists, a national organization committed to a fully transparent approach to money management.