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     Retirement Planning And The Owner Only Business

If you’re an “owner-only” business, you may think your retirement planning OPTIONS are rather limited.  On the contrary, you can enjoy some of the same retirement plans available to larger businesses.

To qualify for “owner-only” STATUS, your business must fall into one of the following categories: 

1. Sole proprietors with no additional EMPLOYEES other than the spouse of the proprietor.

2. Partnerships whose only employees are self-employed PARTNERS and their spouses.

3. Corporations with only one SHAREHOLDER and no employees other than the shareholder and the shareholder’s spouse. 

Thanks to special exemptions granted by the Internal Revenue Service, an “owner-only” business can enjoy all the tax ADVANTAGES of a pension or profit-sharing plan without being required to complete many of the administratively tedious tax forms and paperwork.  In fact, these plans are often as simple to install as an Individual Retirement Account and can be a lot more rewarding.

Simplified Employee Pension Plans were created by Congress in 1978 to provide an ALTERNATIVE to traditional retirement plans.  Simplified Employee Pension Plans provide many of the advantages of a profit-sharing plan for the employee, but with much less reporting and recordkeeping for the employer.  For the employer who values simplicity, a Simplified Employee Pension Plans can be the ideal plan. 

While Simplified Employee Pension Plans are usually most attractive to smaller employers, ANY business (including C corporations, S corporations, partnerships and sole proprietorships) can establish a Simplified Employee Pension Plan.  Unlike a qualified plan, a Simplified Employee Pension Plan may even be established after the END of the tax year.  The deadline is the tax filing date of the employer, including extensions.

The employer completes an Internal Revenue Service Form 5305A.  This simple one-page document is used to set the age and service requirements for participation in the plan, along with the FORMULA for allocating contributions.  Once completed, a copy of this document plus other Simplified Employee Pension Plan information, is given to each eligible employee to satisfy the disclosure requirements of the law.  Simplified Employee Pension Plan money is held in individual retirement accounts established for  the employees.

Businesses may establish ELIGIBILITY requirements for their plans.  The employer may exclude all employees covered by a collective bargaining agreement (if retirement benefits were the subject of good faith bargaining), those under age 21, and employees who have not worked for the employer in at least three of the previous five years (and received more than $450 in compensation for Year 2000). 

Contributions to a Simplified Employee Pension Plan are allocated to eligible employees in PROPORTION to compensation, with each employee receiving exactly the same PERCENT of pay.  These contributions can be substantial, either the lesser of up to 15% of an employee’s compensation or $24,000 in 1999.  Best of all, contributions are discretionary.  Employers can vary the amount from year to year, or skip the contribution entirely.  However, the contributions cannot discriminate in favor of the highly-compensated. 

Simplified Employee Pension Plans offer administrative simplicity because contributions are deposited DIRECTLY into Individual Retirement Accounts opened by the employees who make the investment decisions.  Since the employee, not the employer, controls the Individual Retirement Account, the need for detailed recordkeeping and reporting is eliminated, and Simplified Employee Pension Plans are completely portable, something much appreciated by employees.

Regardless of the size of your business, a financial representative has the tools and the know-how to ASSIST you in implementing a retirement plan that best meets your needs and objectives. 

The articles and opinions in this publication are for general INFORMATION only and are not intended to provide specific advice or recommendations for any individual.  We suggest that you consult your representative, attorney, or accountant with regard to your individual situation.


Terry Leard is a financial services professional with New England Financial Group of Georgia, and a registered representative of New England Securities. He works with individuals and entrepreneurs in the areas of Asset Protection, Income Protection, Retirement Planning, and Estate Planning. Terry has more than nine years’ experience with the firm and has been advising individuals and businesses for more than 20 years. You can contact Terry at 770-505-6376 or , or visit his website at www.nefgeorgia.com.

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