Small Business Small Business Retirement and Retirement Solutions Cash Management Solutions
You Have a Vision, We Have a Way.
Who’s Here Today?
• How many of you own your own business? • What kind of business do you run? • How many of you already have a retirement
plan for your business?
• What type of plan are you familiar with or do
you have?
• How many of you have employees? • How many employees do you have?
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Today’s Agenda
• Importance of saving for retirement • Benefits of establishing a retirement plan • Your retirement plan options • Cash Management and Business Planning Alternatives • Next steps: How Fidelity can help
How Much Will You Need to Retire?
According to some retirement planning experts, you may need: 1. Approximately 85% of your peak annual pre-retirement income each year you’re retired. 2. Income for approximately 20 to 30 years.*
*Source: Life Expectancy Tables taken from IRS Publication 590, Individual Retirement Arrangements (IRAs), Table 1 (Single Life Expectancy – For Use by Beneficiaries).
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Even Low Inflation Can Hypothetically Damage Purchasing Power
$120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0 today 5 10 15 20 $50,000 $57,963 * $77,989 $67,195 $90,305
$104,688
In 25 years, at just a 3% annual rate of inflation, your expenses could more than double what they are today.
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This chart is for illustrative purposes only. Numbers were calculated based on a hypothetical 3% rate of inflation to show the effects of inflation over time; actual inflation rates may be more or less and will vary.
Where Will That Money Come From?
2% Other
17.8% Your Own Investments
18.9% Social Security
40.1% Earned Income
21.2% Pension
Social Security may cover less than 20% of your retirement income – You are responsible for the rest.
Source: Social Security Administration, Office of Policy, “Income of the Aged Chartbook, 2004”, released September 2006. Shares of aggregate income for households with income if $44,129 or more. This chart is for illustrative purposes only.
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Benefits of Establishing a Retirement Plan
1. Makes it easier to save for retirement 2. Helps attract and retain employees 3. May reduce current taxes for you and your employees 4. Allows assets to grow tax deferred
Possibly Reduce Taxable Income for You and Your Employees
TAX ADVANTAGES
EMPLOYER CONTRIBUTIONS
EMPLOYEE CONTRIBUTIONS
Deductible as a Business Expense
Possibly Reduce Current Taxable Income
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Small Business Employees View Offering a Retirement Plan as “Critical”
Half of Small Business Workers Who Have a Retirement Plan Would Not Join A Firm That Does Not Have One.*
*Synovate
Research
The Power of Tax-Deferred Growth
Hypothetical Growth (after-tax) of Annual Investments to a 401(k) vs. a Taxable Account
$1,200,000 $1,000,000 $800,000 $600,000
$429,043 $493,483 $910,195
$1,137,072
$400,000 $200,000 $0 10 Years 20 Years 30 Years
$155,506 $166,315
Taxable Account: Annual $11,250 After-Tax Investment ($15,000 - $3,750 tax) 401(k) Plan: Annual $15,000 Pre-Tax Investment
This hypothetical example compares annually investing $15,000 pre-tax in a 401(k) to $11,250 after tax ($15,000 less $3,750 for taxes assuming a 25% federal income tax rate) in a taxable account on January 1 of each year for the years indicated. Assumptions: (1) 7% annual rate of return, (2) an imputed constant annual federal income tax rate of 17% on taxable account earnings (based on a mix of short and long-term capital gains, interest and dividends), (3) a single lump-sum distribution from the 401(k) at the end of the specified periods with the entire balance being subject to a 25% federal ordinary income tax rate at that time, and (4) 401(k) participant is over age 59½. The ending values do not reflect fees or inflation. If they did, amounts would be lower. 401(k) distributions before age 59½ may also be subject to a 10% penalty. Systematic investing does not ensure a profit and does not protect against loss in a declining market. This example is for illustrative purposes only and does not represent the performance of any security.
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Your Retirement Plan Options
• SEP-IRA • Self-Employed 401(k) • SIMPLE-IRA Plan • 401(k)
Range of Plan Choices
Business Type
Plan Choices • SEP-IRA • Self-Employed 401(k)
Sole Proprietors
Small Businesses with Employees
• SIMPLE-IRA • 401(k) for Small to Mid-Sized Businesses
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A Guide Summarizing Plan Features
Overview of SEP-IRAs
• Key advantage: Easy to set up and maintain • Eligible employers: Any self-employed individual or small-business owner • Funding responsibility: Funded solely by employer contributions • Administrative responsibilities: No annual tax filings
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Who May Find a SEP-IRA Attractive?
Self-employed people and business owners who:
• Have variable incomes • Look for larger but flexible annual contributions • Seek tax deductions • Want a plan that’s easy to administer
Overview of Self-Employed 401(k) Plans
• Key advantage: Generous contribution limits • Eligible employers: Any self-employed individual or small-business owner • Funding responsibility: Recognizes business owner as employer and employee
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Overview of Self-Employed 401(k) Plans
• Employer contributions (0%–25%) • Employee salary deferral contributions – 100% of compensation up to $15,500 – Additional catch-up contribution of $5,000 (if age 50 or older) • Administrative responsibilities – Requires a plan administrator – Annual Form 5500 Filing
Who May Find a Self-Employed 401(k) Plan Attractive?
Owner-only businesses who:
• Are seeking to make the largest possible contribution • Want to take advantage of the age 50 catch-up contribution • For 2007, have net business profits under $225,000 or W-2 wages under $180,000 • Do not have employees other than a spouse • Are willing to perform plan administration
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Comparing Plans for 2007
SEP-IRA
Employer’s Tax-Deductible Contribution up to 25% of compensation* $25,000 (25% x $100,000)
Self-Employed 401(k)
$25,000 (25% x $100,000)
+
None 100% of compensation, up to $15,500
Employee’s Salary Deferral*
+
Employee’s Catch-Up Deferral None If age 50 or older, not to exceed $5,000 $50,500
Final Total Contribution
$25,000
*Maximum compensation on which contributions can be based is $220,000 for 2006 and $225,000 for 2007. For self-employed individuals, compensation means earned income. Hypothetical example for illustrative purposes only. Maximum salary deferral is 100% of compensation up to $15,000 for 20006 and $15,500 for 2007.
Overview of SIMPLE-IRAs
• Key advantage: Salary reduction plan with less administration • Eligible employers: Businesses with 100 or fewer eligible employees • Funding responsibility: Employer shares cost of funding employees’ retirement Employees can elect to make contributions
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Overview of SIMPLE-IRAs
• Employee Deferral (Pre-Tax) contributions – Up to 100% of compensation (max. of $10,500) – Additional catch-up contribution of $2,500 (if age 50
or older)
• Employer contributions – Match employee contribution (up to 3% of
compensation/max. of $10,500)
– Or contribute up to 2% of employee compensation
(max. of $4,500)*
• Vesting: All contributions vest immediately • Administrative responsibilities: No annual tax
filings required; certain annual employee notifications
*The maximum compensation on which contributions and SIMPLE-IRA employer 2% non-elective contributions can be based is $225,000 for the 2007 year plan. For self-employed people, compensation means earned income.
Who May Find a SIMPLE-IRA Attractive?
Small businesses who:
• Want employees to share responsibility for their own retirement • Can contribute something toward their employees’ retirement • Prefer administrative simplicity
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Overview of 401(k)s for Small to Mid-Sized Businesses
• Key advantage: More features, more flexibility • Eligible employers: Any type of public or private company, typically with 20+ employees • Funding responsibility: Employee and employer may elect to contribute
Overview of 401(k)s for Small to Mid-Sized Businesses
• Employee salary-deferral contributions – 100% of compensation up to $15,500 – Additional catch-up contribution of $5,000
(if age 50 or older)
• Employer contributions (0%–25%) • Vesting: Schedule permitted on employer
contributions
• Administrative responsibilities: Annual testing
and reporting
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Who May Find a 401(k) Attractive?
Business owners who:
• Typically have more than 20 employees • Want employees to share responsibility for their
own retirement
• Are willing to take on more responsibilities and
costs in exchange for plan features, service and assistance
• Want to save more than in a SIMPLE-IRA • Want dedicated relationship management and
participant communication and education services
Comparing Plans
2007 EXAMPLE
Employer’s Contribution
SIMPLE-IRA
Match contributions up to 3% of compensation* for participating employees up to $10,500 or 2% of compensation* for eligible employees up to $4,500
401(k)
Up to 25% of compensation,* up to a maximum of $45,000
Employee’s Salary Deferral
Up to 100% of compensation, not to exceed $10,500
Up to 100% of compensation, not to exceed $15,500 An additional salary deferral of up to $5,000 if age 50 or older
Employee’s Catch-Up An additional salary Deferral deferral of up to $2,500 if age 50 or older
Dollar amounts shown reflect 2007 limits. *Maximum compensation on which contributions can be based is $225,000. Compensation means earned income.
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Next Steps
Deciding which plan is right for you
Key Factors When Choosing a Plan
• Whether you have employees • Whether you want your employees to contribute
to their retirement
• How much you are willing to contribute each year • How much administrative responsibility you are
willing to assume
• How much you are willing to pay for your plan • What features, services and assistance you prefer
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Getting Started
Step 1 Step 2
Choose a plan
Set up your plan
Step 3
Notify your employees
Step 4
Contribute to the plan
Manage Your Money and Investments with Ease with the Fidelity Account® for Businesses
• Trade, invest, and manage
your finances all in one account.
Ask about how these additional solutions can help your business:
• Access your money for
day-to-day finances and expenses.
• Business succession planning • Estate planning • Life insurance • Long-term care insurance • Charitable gifting solutions
• See all of your investments
and finances in one place.
• Trading features you need
for your business.
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Next Steps
Put Fidelity’s Resources to Work for You
• Money management expertise • Full range of plan choices • Professional service • Retirement experience
• Wide range of investment options • Extensive support for employees
Thank You
Before investing, consider the funds’ investment objectives, risks, charges and expenses. Contact Fidelity for a prospectus containing this information. Read it carefully.
This seminar herein is general in nature and should not be considered legal or tax advice. Fidelity does not provide legal or tax advice. This information is provided for general educational purposes only and you should bear in mind that laws of a particular state and your particular situation may affect this information. You should consult with your attorney or tax advisor regarding your specific legal or tax situation. Brokerage services provided by Fidelity Brokerage Services, Member NYSE, SIPC, 100 Summer Street, Boston, MA 02110. 1.801813.106 482759.1.0
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