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Retirement Planning

Plans for Your Business

After all the hard work you've put into building your business, the desire to preserve the fruits of your labor is only natural. Preparing for retirement is closely connected with that aim. As a business owner, a wide range of retirement plans are at your disposal. For many sole proprietors, partnerships and smaller corporations, the flexibility and superior savings capability of the SEP IRA and SIMPLE IRA are the keys to securing their future, as well as that of their employees.

Simplified Employee Pension (SEP IRA)

The SEP IRA is a straightforward retirement plan available to any business. You the employer are responsible for making contributions for yourself and any eligible employees. The primary benefits of the SEP IRA include:

  • Significant annual contributions. You may contribute up to 25% of your own and each eligible employee's compensation, or $45,000 per person, whichever is less in 2007.
  • Tax-deductible contributions. Regardless of your income, SEP IRA contributions are always tax-deductible for the employer.
  • Discretionary employer contributions. You decide how much, or how little, you will contribute to the plan each year.
  • Flexible employee eligibility requirements. Employees who do not meet minimum eligibility requirements may be excluded from the plan.
  • Easy administration. SEP IRAs require no annual IRS filing. Plan participants are responsible for directing their accounts.

You may open and fund a SEP IRA as late as your business tax-filing deadline, including extensions. For further information, please refer to our brochure, SEP: Simplified Employee Pension Plan (PDF).

Savings Incentive Match Plan for Employees (SIMPLE IRA)

The SIMPLE IRA permits both employer and employee contributions. Businesses with fewer than 100 employees that do not already have a retirement plan are eligible to participate. The advantages of the SIMPLE IRA include:

  • Generous tax-deductible employee contributions. Through convenient payroll deductions, eligible employees may defer up to $10,500 to their SIMPLE IRA account each year. Individuals age 50 or older may defer up to $13,000.
  • Various employer contribution options. Each year, you must make a contribution for eligible employees based on one of the following formulas:
  • Dollar-for-dollar match of up to 3% of employee compensation, or
  • Non-elective contributions equaling 2% of employee compensation (Employee compensation is subject to a $225,000 salary cap in 2007.)(Employer contributions are always tax-deductible.)
  • Flexible employee eligibility requirements. Employees may be excluded from participation if certain eligibility requirements are not met.
  • Easy administration. There are no annual IRS filing requirements. Plan participants are responsible for directing their accounts.

The deadline for establishing a SIMPLE IRA for the current year is October 1st.

The Super-Simplified 401(k) Plan

The Super-Simplified 401(k) Plan is designed for a business entity whose only eligible participants are business owners, partners and/or spouses of owners or partners. Thanks to recently enacted legislation, 401(k)s will now permit higher contributions for many business owners than other retirement plan alternatives such as SIMPLE IRAs and SEP IRAs. This Super-Simplified 401(k) Plan offers many benefits. Consider the following:

  • Higher tax-deductible contribution limits — Business owners are permitted to make profit sharing contributions of up to 25% of their compensation, plus an additional $15,500 salary deferral contribution. The combination of profit sharing and salary deferral contributions may not exceed $45,000. Business owners age 50 or older may defer up to $20,500, for a total combined contribution of $50,000.
  • Easy and inexpensive to administer — As long as employees are not eligible to participate in the 401(k) plan, many of the administrative and record keeping requirements associated with 401(k) plans do not apply. When plan assets, however, exceed $250,000 the business owner must file an annual return with the Department of Labor (DOL). Smith Barney does not prepare this filing.
  • Wide range of investment choices — The Super-Simplified 401(k) Plan allows for virtually any investment, including stocks, bonds, mutual funds, unit investment trusts and certificates of deposit. This investment flexibility offers a significant advantage in today's marketplace.
  • Loan availability — Under the same guidelines available to large corporate 401(k) plans, loans to owner-employees are available tax-free and penalty-free. The loan cannot exceed the lesser of 50% of account balance or $50,000. Repayment is subject to IRS guidelines.
  • Plan Establishment Deadline — The plan must be established by the end of the business's tax year. For further information, please refer to our brochure, The Super-Simplified 401(k) Plan (PDF).

Citigroup, Inc., its affiliates, and its employees are not in the business of providing tax or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Tax-related statements, if any, may have been written in connection with the "promotion or marketing" of the transaction(s) or matters(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.

For more information, please contact your Financial Advisor.

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