About Self-Employed 401(k)s
Higher Contribution Maximums, Bigger Potential Tax DeductionsSelf-employed individuals and owner-only businesses can now save more for their retirement through a 401(k) plan. Fidelity's Self-Employed 401(k) allows you to take advantage of this increased retirement and tax savings opportunity — with no set-up fee or annual account fee. Who Can Establish a Fidelity Self-Employed
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| • | A Fidelity Self-Employed 401(k) is available to self-employed individuals or business owners with no employees other than a spouse, including sole proprietors, partnerships, corporations, and "S" corporations. | |
Tax Advantages of Self-Employed 401(k)s
A Self-Employed 401(k) may substantially reduce your current income taxes because generally, you can deduct the entire amount of your plan contributions from your taxable income each year.
| • | If your business is unincorporated, you can deduct contributions for yourself from your personal income | |
| • | If your business is incorporated, you can generally deduct contributions as a business expense |
The hypothetical example below is used for illustrative purposes only, and shows just how significantly a retirement plan may reduce your taxes for the 2007 tax year.
1 Maximum compensation on which contributions can be based is $230,000 for 2008 or $225,000 for 2007. If you are self-employed, compensation means earned income.
2 With catch-up provisions, individuals 50 and older may defer up to $20,500 in 2007 or 2008 subject to the combined deferral and employer contribution limit.
3 Based on IRS 2007 federal tax rates for a single filer. These calculations assume your self-employed business income is your only income. They also do not take into account any deductions or exemptions for which you may be eligible. Tax savings will vary depending on your individual federal and state tax rates and your personal circumstances.
Higher Contribution Limits
| • | Fidelity's Self-Employed 401(k) allows you to make tax-deductible 401(k) salary deferrals to the plan of up to $15,500 for 2007 or 2008. | |
| • | If you are age 50 or older you can also make an additional catch-up salary deferral contribution of $5,000. | |
| • | The plan also lets business owners make tax-deductible profit sharing contributions of up to 25% of compensation4, up to the annual maximum of $45,000 for the 2007 plan year or $46,000 for the 2008 plan year. | |
| • | Note that the total of salary deferrals and profit sharing contributions cannot exceed $45,000 ($50,000 if age 50 or older) for 2007 and $46,000 ($51,000 if age 50 or older) for 2008. |
How a Self-Employed 401(k) contribution can add up
As you can see from the example below, a self-employed business owner who is age 50 with $100,000 in compensation may save up to $20,500 more with a Self-Employed 401(k) than with a SEP-IRA or Profit Sharing Plan.
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4 Maximum compensation on which contributions can be based is $225,000 for 2007. For self-employed individuals, compensation means earned income.
Note: Fidelity also offers a Profit Sharing Plan which lets you contribute the same amount as a SEP-IRA. A Profit Sharing Plan may be better suited for your needs if you have multiple employees and want more restrictive eligibility requirements to participate in the plan. Please contact a Retirement Specialist at 800-544-5373 for further information.
Plan Set-Up Deadline
| • | The deadline to open your Fidelity Self-Employed 401(k) is December 31 (or fiscal year-end). |
Contribution Deadline
| • | The deadline for depositing your employer profit sharing contributions for the current calendar year is your tax-filing deadline, plus extensions (for unincorporated businesses, this date is usually April 15 of the following year, plus any extensions). | |||||||||
| • | The deadline for depositing your employee 401(k) salary deferrals for owner-only plans is generally by your tax-filing deadline, plus extensions5 | |||||||||
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5 The deadline to deposit salary deferrals for plans covering employees other than the business owner or spouse of the business owner is generally as soon as possible, but no later than the 15th business day following the month in which salary deferrals are withheld.
6 Under no circumstances may a salary deferral election apply to compensation you have already received.
Converting to the Self-Employed 401(k)
If you already have a retirement savings plan for your business, you may be able to roll over or transfer existing plan assets to a Self-Employed 401(k). Consult with your tax advisor or benefits consultant prior to making a change to your retirement plan.
Rolling Over Plan AssetsAssets from the following plans may be eligible to be rolled over into a Self-Employed 401(k):
| • | Profit Sharing, Money Purchase, and 401(k) plans | |
| • | SEP-IRAs and SARSEPs | |
| • | SIMPLE IRA accounts after two years of SIMPLE participation | |
| • | 403(b) and governmental 457(b) plans | |
| • | Traditional IRAs |
For further information on your specific situation, consult with your tax advisor and call a Fidelity Retirement Specialist at 800-544-5373.
Ease of Plan Administration
Maintaining Your Fidelity Retirement Plan
Every plan must have a Plan Administrator – someone who takes care of administrative responsibilities and ensures the plan is operating according to the Plan Document. Because a Fidelity plan is easy to maintain, the employer usually acts as the Plan Administrator. You may also name another person at your firm, or your accountant, as the administrator.
As Plan Administrator you will be responsible for
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Complete and maintain the adoption agreement for your permanent files |
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Establish an account for each participating business owner and if applicable a spouse who is employed by the business |
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File annual tax report Form 5500 — this filing does not apply until your total plan assets exceed $250,000. For more information on tax reporting, read Form 5500 Filing Assistance or Form 5500 Frequently Asked Questions. |
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Calculate and allocate profit sharing contributions |
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Complete and submit the 401(k) Contribution Remittance Form with each contribution deposit you make to the plan. |
Why Consider Fidelity for Your Retirement Plan?
No Fee* and A Wide Range of Investment Choices
Fidelity-managed mutual funds and 4,600 mutual funds from other well-known fund companies through Fidelity FundsNetwork®, in addition to individual securities, including stocks and bonds, CDs, and U.S. Treasury bills.
Before investing, consider the funds' investment objectives, risks, charges and expenses. Contact Fidelity for a prospectus containing this information. Read it carefully.
Dedicated Retirement SpecialistsA team of knowledgeable representatives available to help you select the plan that may be right for you and answer questions to help you calculate your annual contribution. Call a Retirement Specialist at 800-544-5373 for more information.
Fidelity Portfolio Advisory ServicesSMInvestors with substantial assets in their retirement accounts can often benefit from Portfolio Advisory Services7, a professional money management service designed to actively manage your account of $50,000 or more by investment in a model mutual fund portfolio. For more information on this discretionary money management service, please call 800-544-3455.
7 Fidelity Portfolio Advisory Services is a service of Strategic Advisers, Inc., a registered investment adviser and a Fidelity Investments® company.
Open a Fidelity Self-Employed 401(k)
Investing in a Fidelity Self-Employed 401(k) is easy and cost effective with no fee* and a wide range of investment choices. To open a Self-Employed 401(k) download the Fidelity Self-Employed 401(k) materials.
For assistance completing the forms, or if you would prefer to discuss your options with a Fidelity Retirement Specialist, call 800-544-5373.
* IRA Brokerage account fee has been eliminated on Fidelity's Traditional, Roth, SEP and Rollover IRAs. Fund expenses and brokerage commissions still apply. Depending on your situation, fees may include low-balance fees, short-term trading fees, and account closing fees.
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