The SEP, or Simplified Employee Pension plan, is an uncomplicated alternative to traditional pension plans. The SEP plan allows business owners, their employees, and the self-employed to accumulate assets for retirement, while reducing their tax bill. Whether you are the owner or employee of a business, a SEP plan can allow you to take an active part in your retirement savings.

Consider these employer benefits:

Simplicity. SEP record keeping is minimal and most, if not all, of the administrative costs associated with qualified retirement plans are eliminated. In addition, there is no annual IRS filing requirement once disclosure requirements are met. And because employees make their own investment decisions, your fiduciary responsibility is limited.

Contribution flexibility. As the employer, you have discretion over the amount and timing of annual contributions into your or employees’ SEP accounts, including the choice to suspend contributions in a given year. SEP contributions must be allocated uniformly among eligible employees, with all employees receiving the same percentage of their compensation. In 2007, the maximum annual contribution is 25% of each participant’s compensation ($225,000 salary cap), or $45,000, whichever is less.

Low costs. The SEP is as easy to establish as it is to operate. SEP plans have lower set-up costs than most pension and profit-sharing plans.

Tax savings. Employer contributions made to a SEP are a tax-deductible business expense, reducing, dollar for dollar, the amount of income subject to taxes. In addition, the employer’s contribution is excluded from employee’s compensation, so it is not includable in taxable wages.

Tax-deferred growth. Contributions to a SEP account grow tax deferred. There are no taxes owed on interest, dividends or capital gains earned by your contributions until withdrawals from the plan are made. Distributions made prior to age 59 ½ may be subject to a 10% premature withdrawal penalty.

Simple to establish. As an employer or self-employed individual, you have until your tax-filing deadline, including extensions, to establish and fund a SEP.

Consider these employee benefits:

Investment flexibility. As an employee participating in a SEP plan, you can benefit from a variety of investment choices within your individual SEP IRA account. You can build a well-balanced portfolio suited to your unique risk tolerances and investment preferences. As your objectives change, or the economic climate dictates an adjustment to your investment strategy, your Financial Advisor can help you weigh your alternatives and offer timely suggestions.

Comprehensive IRA. You can consolidate different retirement plans – such as a Traditional or Rollover IRA – within your SEP IRA. In addition to your employer’s SEP contributions, you can make Traditional IRA contributions into your SEP IRA account. Although your IRA contributions may not be tax deductible, they will grow tax deferred. By consolidating your Traditional IRA with your SEP IRA, you may reduce fees and paperwork, as well as make tracking your investments far easier.

Tax-deferred growth. Employer contributions into your individual SEP account grow tax deferred. You pay no taxes on the interest, dividends, or capital gains earned in your account until you begin to withdraw funds from the plan. Distributions from your SEP IRA account are taxable, and may be taken at any time. For individuals who are age 70½ or older, a required minimum distribution amount applies.

Immediate vesting. All contributions to your SEP account are immediately 100% vested. This includes employer contributions as well as any Traditional IRA contributions.

If you’re an employee and your company does not offer a retirement plan, speak to your employer about the benefits of a SEP retirement plan. If you own a business and want to explore the advantages of a SEP, please contact your local Smith Barney Financial Advisor for additional information. An employer who rewards employees by providing attractive retirement benefits has the ability to engage and keep a loyal work force.

 Peggy W. Etheridge is a Financial Advisor with Smith Barney located in Plano, Texas, and may be reached at 972-943-7272 or 800-965-8207. Smith Barney is a division of Citigroup Global Market Inc. Member SIPC.
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