Part of planning and managing business risk is not putting all your eggs in one basket. Your business is one basket. Personal retirement savings is another. Hedging against weaknesses and threats — both known and unknown — helps solidify your long-term financial foundation. Saving for retirement independent of the value of your business is one way you can begin diversifying and safeguarding yourself from business risk.

Diversification is important in any retirement plan. This is especially true, and too often forgotten, when your biggest asset and the focus of your attention is the business you are building. Diversifying includes developing savings separate from the value of the business — creating another basket.

Won’t insurance help with risk? In many cases, it will, but insurance doesn’t cover everything. For example, there is generally no coverage for the risk a business faces when its name is tarnished in a newspaper article or social media frenzy arising from a key employee’s commission of a reprehensible crime. In moments, unexpected incidents like that can decimate the value of your business that took years to build.

For the same reason you wouldn’t put all your money in a single publicly traded stock, you shouldn’t let your business become your sole valuable asset if you can help it. Conventional retirement savings plans are one way you can begin diversifying. The tax attributes of retirement savings plans often make them favorable as well.

Another benefit of using retirement savings to diversify is that, in Washington, retirement funds receive creditor protections not available to nonretirement funds. Generally, a limited liability entity, such as an LLC or corporation, paired with insurance serves as the primary liability protection for small business owners. But extra protection doesn’t hurt, especially when it’s easily obtained. These protections arise from Washington law RCW 6.15.020 governing which funds are exempt from creditors’ collection efforts. The protections largely apply in bankruptcy too. So, legitimate retirement saving may provide the added benefit of increased asset insulation from creditors in addition to its retirement planning objectives.

A financial planning professional can help determine which retirement plan most suitably aligns with your unique goals, whether that’s a simplified employee pension IRA, SIMPLE IRA, 401(k), or another retirement savings option that sets funds aside separate from the value of your business. 

There are also attorneys who focus exclusively on compensation planning and the Employee Retirement Income Security Act who can be resources regarding which plan may be right for you and your business.

Each plan has its own attributes. Which plan is right for your business depends on various factors, including how much you want to contribute, employer match requirements, employee contribution allowances, the options you want for investments, tax attributes, and ease of administration. 

It's worth considering whether a trade association retirement fund might suit your business. Trade associations offer retirement plans for small- and midsized employers in various sectors, including retail, technology, building and contracting, manufacturing, and professional services. Not every association plan will be a good fit, but in many cases, the plans offered through trade associations may be low cost and have excellent investment options.

A quality financial adviser can prepare a side-by-side comparison of costs, investment options, and tax attributes for various plans. An adviser who takes their fiduciary responsibility to heart will tell you when a trade association plan is a better choice than opening a plan with the adviser — even though the association plan won’t bring them any fee.

An attorney focused on compensation and retirement plans may also have excellent insights regarding plan selection. Their industry experience may enable them to help identify association plans that would work for your business. And their experience with other clients using an association plan may allow them to share insight with you about the quality of plan administration and customer service.

A trade association retirement plan with low costs may not be right if it offers limited investment options. Or you may find that the trade association plan really isn’t low cost after all. Nonetheless, trade association plans are too often overlooked, so they are worth exploring.

The plan that is right for your business may evolve over time. If you have a plan in place and haven’t given it some thought in a while, it's worth reexamining and making sure it's still the right plan for you and your business.

Retirement planning is important for a variety of reasons. Diversification is a benefit too often overlooked. And the diversification process can take time. So, there’s no time like the present to begin the process of putting your eggs in more than one basket.

Shea Meehan is an attorney and the director of planning at Cornerstone Wealth Strategies, headquartered in Washington state and servicing clients nationwide.