Embarking on a 401(k) rollover can seem like a daunting task, but with the right guidance, it's a straightforward process that empowers you to take control of your retirement savings. If you have an old 401(k) with Fidelity from a previous employer, you're in the right place! This comprehensive guide will walk you through every step, ensuring a smooth and tax-efficient transfer of your hard-earned money.
Your 401(k) Future: A Call to Action!
Are you ready to take charge of your retirement savings? Leaving an old 401(k) behind can mean missing out on potential growth, incurring unnecessary fees, or having limited investment choices. By rolling over your Fidelity 401(k), you're not just moving money; you're optimizing your financial future. So, let's dive in and get started!
Step 1: Confirm the Details of Your Fidelity 401(k)
Before you do anything else, it's crucial to gather accurate information about your existing Fidelity 401(k). This will make the entire rollover process much smoother.
A. Ascertain Rollover Eligibility
When is it eligible? Generally, your 401(k) becomes eligible for a rollover a week or two after you've officially left your former employer.
Contact Fidelity or your former HR: If you're unsure about your specific plan's eligibility, the best course of action is to contact Fidelity directly or reach out to your former employer's HR department. They can confirm if your funds are ready for transfer.
B. Determine Your 401(k) Type
Traditional 401(k) vs. Roth 401(k): It's essential to know whether your 401(k) is a traditional (pre-tax contributions) or a Roth (after-tax contributions) account. This will dictate your rollover options and potential tax implications. Understanding this distinction is critical for avoiding unexpected tax bills.
C. Update Your Contact Information
Current Mailing Address: Ensure your mailing address is up-to-date with Fidelity. Many rollovers involve checks being mailed, and you want to make sure it reaches you safely.
Step 2: Decide Where to Roll Over Your Funds
Once you have a clear picture of your Fidelity 401(k), the next crucial step is to determine where you want to move your money. You typically have a few primary options, each with its own advantages.
A. Rolling Over to an Individual Retirement Account (IRA)
This is a very popular choice due to the flexibility and control it offers.
Rollover IRA: If you have a traditional 401(k), you'll typically open a Rollover IRA (sometimes called a Traditional IRA for this purpose). This allows your money to continue growing tax-deferred.
Roth IRA: If you have a Roth 401(k), you'll want to roll it into a Roth IRA. This ensures your qualified withdrawals in retirement remain tax-free.
Important Note for Mixed Accounts: If your 401(k) contains both pre-tax and after-tax contributions (less common but possible), you might need to open both a traditional and a Roth IRA to accommodate the different tax treatments.
Benefits of an IRA Rollover:
Wider Investment Selection: IRAs often provide a much broader range of investment options compared to many employer-sponsored 401(k) plans. This can include individual stocks, bonds, ETFs, mutual funds, and more.
Consolidation: You can consolidate multiple old 401(k)s from different employers into a single IRA, simplifying your financial management.
Control: You have direct control over your investments and can tailor your portfolio to your specific financial goals and risk tolerance.
No Required Minimum Distributions (RMDs) for Roth IRAs: Unlike traditional IRAs and 401(k)s, Roth IRAs do not have RMDs during the original owner's lifetime.
B. Rolling Over to a New Employer's 401(k)
If your new employer offers a 401(k) plan and allows incoming rollovers, this can be another viable option.
Check Plan Rules: Always verify with your new employer's plan administrator if their 401(k) accepts rollovers from outside accounts. Not all plans do.
Benefits of a New 401(k) Rollover:
Simplicity: Keeping all your retirement savings in one place can be convenient.
Creditor Protection: 401(k)s often offer stronger creditor protection than IRAs under federal law.
Loan Availability: If your new 401(k) offers plan loans, you might be able to borrow against your account in the future (though this should be approached with caution).
Delayed RMDs (if still working): If you are still working for the employer sponsoring the 401(k) plan, you may be able to delay RMDs past age 73 (or current RMD age).
C. Leaving Your Money in the Old Fidelity 401(k)
While less common for active rollovers, this is an option if your former plan permits it.
Considerations:
Your account remains subject to your old employer's plan rules, fees, and limited investment choices.
You cannot make new contributions to this account.
Some plans may automatically roll over small balances (e.g., under $5,000) to an IRA or even issue a check if the balance is very small (e.g., under $1,000). Be aware of these thresholds to avoid unintended distributions.
Step 3: Initiate Your Rollover with Fidelity
This is where the rubber meets the road! Fidelity provides a couple of ways to initiate your rollover.
A. Online Initiation via NetBenefits® (if your old plan is with Fidelity)
If your old employer's 401(k) plan is still managed by Fidelity (often through NetBenefits®), this is usually the quickest and easiest method.
Log in to NetBenefits®: Go to NetBenefits.com and log in to your account.
Navigate to Rollovers: Look for a "Quick Links" section or a similar menu item, and then select "Rollovers."
Follow the Prompts: The online system will guide you through the necessary steps. You'll specify where you want the funds to go (e.g., a new Fidelity IRA or a new employer's 401(k) if also with Fidelity).
Direct Transfer: For rollovers within Fidelity (from a Fidelity 401(k) to a Fidelity IRA), the transfer is often direct and doesn't require additional paperwork.
B. Initiating by Phone or Form (for rollovers to another institution)
If you're rolling your Fidelity 401(k) to an IRA or 401(k) at another financial institution, you'll likely need to contact Fidelity directly or fill out their rollover authorization form.
Call Fidelity:
Have your old 401(k) statement handy.
Be prepared with the account number for your new IRA or 401(k) account at the receiving institution, along with their official name and potentially wire instructions or mailing address for checks.
Fidelity's Workplace Investing team can be reached at 800-343-0860 (Monday-Friday, 8:30 AM to midnight ET).
Tip: Set aside about 30 minutes in a quiet place for this call.
Fidelity's Rollover Authorization Form: You can often find this form on Fidelity's website. It will require information about your old 401(k) and the details of the receiving account.
Specify "Direct Rollover": This is crucial. Always request a direct rollover. In a direct rollover, the funds are transferred directly from Fidelity to your new account (either electronically or via a check made payable to the new institution "FBO [Your Name]"). This avoids the 20% mandatory tax withholding that occurs with an indirect rollover.
Direct Rollover vs. Indirect Rollover: A Critical Distinction
Direct Rollover (Highly Recommended): Fidelity sends the money directly to your new retirement account. You never physically receive the funds. This avoids any immediate tax implications and ensures the funds maintain their tax-deferred status.
Indirect Rollover (Generally AVOID unless necessary): Fidelity sends a check to you, payable to you. You then have 60 days to deposit the full amount into a new qualified retirement account. If you fail to deposit the full amount within 60 days, the distribution will be considered a taxable withdrawal, subject to income tax and a 10% early withdrawal penalty (if you're under 59½). Furthermore, your old plan will typically withhold 20% for federal taxes from the distribution. If you want to roll over the full amount, you'll need to make up that 20% from your own funds, and then you'll receive it back as a tax credit when you file your taxes. It's a much more complicated and risky process.
Step 4: Receive and Deposit Your Rollover Check (if applicable)
Even with a direct rollover, sometimes Fidelity (or your old plan administrator) may send the check to you, but it will be made payable to your new IRA provider or new 401(k) plan "FBO [Your Name]".
Do NOT Cash the Check: If you receive a check, do not cash it. It is not for your personal use.
Forward to New Institution: Promptly endorse the check (if required by the receiving institution) and send it directly to your new IRA or 401(k) provider.
Mobile Deposit: Many financial institutions offer mobile check deposit via their app, which can be the quickest way to deposit the check.
In-Person Deposit: If your new provider has a local branch, you can deposit the check in person.
Mail: You can also mail the check to the specified address provided by your new institution.
Step 5: Invest Your Rolled-Over Funds
Once the funds are safely in your new IRA or 401(k), the final and crucial step is to invest them. Don't let your money sit in cash!
Choose Investments: Select investments that align with your financial goals, risk tolerance, and time horizon.
Seek Guidance (Optional): If you're unsure about investment choices, consider consulting a financial advisor. Many firms, including Fidelity, offer resources and advice.
Monitor and Adjust: Periodically review your investments and make adjustments as needed based on market conditions and your evolving financial situation.
Important Considerations & Potential Pitfalls
Tax Implications:
Traditional to Traditional/Rollover IRA: Generally tax-free and tax-deferred.
Roth to Roth IRA: Tax-free.
Traditional to Roth IRA (Conversion): This is a taxable event. You will owe income tax on the amount converted in the year of the conversion. However, future qualified withdrawals from the Roth IRA will be tax-free. Consider this option carefully with a tax advisor.
Net Unrealized Appreciation (NUA): If your 401(k) held company stock that has significantly appreciated, rolling it over might impact your ability to utilize the NUA tax strategy. Consult a tax advisor for this specific situation.
Fees: While the rollover process itself is typically free, compare the fees of your old 401(k) with those of your new IRA or 401(k). IRAs can sometimes offer lower administrative and investment fees.
Outstanding 401(k) Loans: If you have an outstanding loan from your Fidelity 401(k), it must generally be paid off before you can roll over the account. If not repaid, the outstanding loan balance may be treated as a taxable distribution.
Market Volatility: While you can't perfectly time the market, be aware of market conditions during the rollover process, especially if your funds are temporarily in cash during the transfer.
10 Related FAQ Questions
How to initiate a 401(k) rollover from Fidelity?
You can initiate a rollover from Fidelity via their NetBenefits website (if your plan is administered by Fidelity) or by calling Fidelity's Workplace Investing team directly.
How to choose between rolling over to an IRA or a new 401(k)?
Consider factors like investment choices, fees, consolidation needs, creditor protection, and your access to plan loans. An IRA generally offers more investment flexibility, while a new 401(k) can simplify management if you prefer to keep all your retirement savings with your current employer.
How to determine if my Fidelity 401(k) is eligible for rollover?
Generally, your 401(k) becomes eligible for rollover a week or two after you leave your employer. You can confirm eligibility by contacting Fidelity or your former employer's HR department.
How to avoid taxes and penalties during a 401(k) rollover?
Always opt for a direct rollover, where funds are transferred directly from Fidelity to your new retirement account. This prevents the 20% mandatory tax withholding and avoids potential income tax and early withdrawal penalties.
How to handle a rollover check from Fidelity?
If you receive a check, do not cash it. It will be made out to your new financial institution "FBO [Your Name]". Endorse it if necessary and immediately send it to your new IRA or 401(k) provider via mobile deposit, in-person, or mail.
How to know if my 401(k) is traditional or Roth?
Check your 401(k) statements or contact Fidelity's customer service. Traditional 401(k)s are funded with pre-tax dollars, while Roth 401(k)s are funded with after-tax dollars.
How to update my address with Fidelity for a rollover?
You can typically update your mailing address by logging into your Fidelity account online or by calling their customer service number.
How long does a 401(k) rollover from Fidelity typically take?
If rolling over to a Fidelity IRA, it can take 7-10 business days. For rollovers to other institutions, it might take 3-5 weeks or longer, depending on the processes of both Fidelity and the receiving institution.
How to understand the fees associated with a 401(k) rollover?
The rollover transfer itself is usually free. However, be sure to compare the ongoing administrative and investment fees of your old 401(k) with those of your new IRA or 401(k) to ensure it's a financially advantageous move.
How to get assistance with my Fidelity 401(k) rollover?
You can contact Fidelity's Workplace Investing team at 800-343-0860 for personalized assistance and to walk through the process.
