Use the IRA funding deadline to connect with small business owners

Use the IRA funding deadline to connect with small business owners

Small business owners, including 17 million sole proprietors, represent the vast majority of firms in the U.S. (Small Businss Admin, May 2009) and provide an opportunity for advisors looking to grow their retirement business. In fact, according to the Small Business Administration (Saving for Retirement: A Look at Small Business Owners, March 2010), 9 million self-employed individuals are without retirement plan coverage. SEP IRAs represent an excellent entry point for small employers looking to establish a retirement savings plan. And like Traditional IRAs, investors have until the tax filing deadline to make a prior year contribution. These employers are likely consulting with their accountants now and have a clearer picture of their 2010 income and tax liability. Now is a great time to contact sole proprietors and small business owners to discuss the benefits of funding a SEP IRA contribution including:

Reduced taxes through tax-deductible contributions
Investors may take a federal income tax deduction equal to the amount of their employer contributions, up to a maximum of 25% of compensation paid during the year to employees (20% of net earnings after expenses if the investor is self-employed). Plans meeting certain requirements may qualify for a $500 start-up tax credit.

Improved outlook for retirement through tax-deferred growth of account assets*

Maximized retirement savings through relatively high contribution limits
There is a contribution limit of $49,000 or 25% of compensation for 2011, whichever is less. Self-employed individuals can contribute up to 20% of compensation.

Flexible funding since contributions are discretionary
Employers can decide every year what amount to contribute, which can vary from year to year, or skipped altogether. Keep in mind, however, that SEP IRA contributions must be nondiscriminatory, which means you are generally required to contribute the same salary percentage to each eligible employee’s account.

Attracting and retaining employees by offering a retirement plan benefit
A SEP IRA allows employers to prepare for a financial future while also helping employees prepare for theirs.

For more information on the benefits of a SEP IRA, download our Putnam SEP IRA fact sheet.

*Before-tax and after–tax saving assumes a hypothetical investment of $250 a month, with annual returns of 8% compounded monthly and earnings reinvested. The before–tax illustration does not reflect the effect of taxes, which are due upon withdrawal. The after-tax illustration reflects the effects of an annual 25% federal tax. The value of the tax–deferred account upon withdrawal will depend on the investor’s tax rate. Depending on an investor’s tax rate, the value of the taxable account upon withdrawal may be higher or lower than what is shown. Lower minimum tax rates on capital gains and dividends would make the investment return for the taxable investment more favorable, thereby reducing the difference in performance between the
accounts shown. Investors should consider their personal investment horizons and income tax brackets, both current and anticipated, when making an investment decision; these may further affect the results of the comparison. The return is shown for illustrative purposes only and is not intended to predict the return of any investment in your plan, which will fluctuate. Regular investing does not ensure a profit or protect against loss in declining markets. Withdrawals are subject to income tax, and those made before age 591/2 may be subject to an additional 10% tax.

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