Are you approaching the age where you need to start taking money out of your retirement accounts? Feeling a little overwhelmed by the term "Required Minimum Distribution" (RMD) and how it applies to your Fidelity 401(k)? You're not alone! This is a common point of confusion for many retirees, but don't worry, we're here to break it down for you.
Taking your RMD from your Fidelity 401(k) is a crucial step in managing your retirement savings, and doing it correctly can help you avoid hefty IRS penalties. This comprehensive guide will walk you through the process, step by step, ensuring you understand exactly what you need to do.
Understanding RMDs: What Are They and Why Do They Matter?
Before we dive into the "how-to," let's quickly clarify what RMDs are. Simply put, Required Minimum Distributions (RMDs) are the minimum amounts you must withdraw from most tax-deferred retirement accounts, such as Traditional 401(k)s, Traditional IRAs, SEP IRAs, and SIMPLE IRAs, once you reach a certain age.
The IRS implemented RMDs to ensure that taxes are eventually paid on the money that has been growing tax-deferred in your retirement accounts. Failing to take your RMD or taking less than the required amount can result in a significant penalty – 25% of the amount not withdrawn, though this can be reduced to 10% if the RMD is corrected within two years.
Important Note on Age: Thanks to the SECURE 2.0 Act, the age at which RMDs generally begin has shifted.
If you reached age 72 in 2022 or earlier, your RMDs continued at age 72.
If you reached age 73 in 2023 or later, your RMDs generally start at age 73.
Starting in 2033, the RMD age will increase to 75.
However, for 401(k)s specifically, if you are still working for the employer sponsoring the 401(k) and are not a 5% owner of the business, you may be able to delay your RMDs from that specific 401(k) until April 1 of the year after you retire. This "still working" exception doesn't apply to IRAs.
Now, let's get to the practical steps for withdrawing your RMD from your Fidelity 401(k).
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| How To Take Rmd From Fidelity 401k |
Step 1: Confirm Your RMD Obligation and Age
Sub-heading: Are You Required to Take an RMD?
First things first: Let's confirm if you're actually required to take an RMD from your Fidelity 401(k) this year.
Age: As mentioned, the current general RMD age is 73 (for those who turned 73 in 2023 or later).
Still Working Exception: Are you still employed by the company that sponsors your Fidelity 401(k)?
If yes, and you are not a 5% owner of the company, you might be able to delay your RMD from that 401(k) until you retire. Crucially, you'll need to confirm with your plan administrator or Fidelity if this exception applies to your specific plan. Some plans may still require you to start RMDs at the standard age regardless of your employment status.
If no, meaning you are retired or no longer working for the employer, then RMDs are likely required.
Take a moment to verify your specific situation. If there's any doubt, a quick call to Fidelity or your plan administrator (if your 401(k) is through a former employer) can provide clarity.
Step 2: Determine Your RMD Amount
Once you've confirmed you need to take an RMD, the next critical step is to figure out how much you need to withdraw.
Tip: The middle often holds the main point.
Sub-heading: How Fidelity Calculates Your RMD
Fidelity generally calculates your RMD amount for you based on IRS rules. This calculation is primarily based on two factors:
Your 401(k) account balance as of December 31 of the previous year. This is a fixed point in time for the current year's RMD calculation.
Your life expectancy factor from the IRS Uniform Lifetime Table. This table provides a divisor based on your age (or, in some specific cases, the joint life expectancy of you and a sole beneficiary spouse who is more than 10 years younger).
Sub-heading: Locating Your RMD Information on Fidelity
Fidelity makes it relatively easy to find your calculated RMD.
Online via NetBenefits:
Log in to your Fidelity NetBenefits account (this is where most employer-sponsored plans are managed).
Look for a section related to "Retirement Distributions," "Withdrawals," or specifically "RMD Information." Fidelity often has a Retirement Distribution Center which provides a snapshot of your RMD.
Contact Fidelity: If you can't find it online, or prefer to speak with someone, call Fidelity's customer service for workplace plans. They can provide your specific RMD amount and answer any questions.
Remember that Fidelity's calculation is for your Fidelity 401(k) specifically. If you have other retirement accounts (like IRAs at other institutions), you'll need to calculate their RMDs separately.
Step 3: Choose Your RMD Withdrawal Method
Fidelity offers several ways to take your RMD from a 401(k), giving you flexibility based on your needs.
Sub-heading: One-Time Withdrawal
Best for: Those who prefer to take their entire RMD in a single lump sum, or who want to manage the timing themselves.
Process:
Log in to NetBenefits.
Navigate to the withdrawals or distribution section for your 401(k).
Select "One-Time Withdrawal."
Specify the amount: Ensure it's at least your calculated RMD. You can always withdraw more than your RMD, but withdrawing less will incur penalties.
Choose your delivery method: You can typically have the funds deposited directly into your bank account via Electronic Funds Transfer (EFT) or receive a check in the mail. EFT is usually faster.
Tax Withholding: You'll be prompted to select your federal and state tax withholding. This is an important decision. RMDs are taxable as ordinary income. Consider consulting a tax advisor to determine the appropriate withholding to avoid an underpayment penalty. The default federal withholding is often 10%, but you can adjust this.
Review and Confirm: Carefully review all the details before submitting your request.
Sub-heading: Systematic or Automatic Withdrawals
Best for: Those who prefer to set it and forget it, ensuring their RMD is automatically distributed throughout the year. This can help manage cash flow and potentially reduce the tax impact by spreading out the income.
Process:
Log in to NetBenefits.
Look for options to set up "Automatic Withdrawals" or "RMD Systematic Withdrawals."
Select Frequency: You can usually choose annual, quarterly, or monthly payments. Fidelity will automatically adjust the withdrawal amount each January to satisfy that year's RMD.
Choose Delivery: Similar to one-time withdrawals, you can opt for direct deposit (EFT) to your bank account.
Tax Withholding: Again, specify your desired tax withholding. Fidelity will withhold taxes from each payment.
Start Date: Set the date for your first payment.
Review and Confirm: Double-check your settings before finalizing.
Sub-heading: In-Kind Transfers (to a taxable brokerage account)
Best for: Those who don't immediately need the cash from their RMD and want to keep their assets invested. This is a less common option for 401(k)s, but may be available.
Process:
This typically involves transferring shares of your investments from your 401(k) to a taxable brokerage account (e.g., a Fidelity brokerage account).
While this satisfies the RMD, the value of the transferred assets is still considered taxable income. You'll need to pay the taxes on this "distribution" even though you didn't receive cash directly.
You may need to sell other assets or use cash from another source to pay the taxes.
It's crucial to confirm if your specific Fidelity 401(k) plan allows for in-kind RMD transfers. This is more common with IRAs. Contact Fidelity directly to explore this option.
Tip: Use the structure of the text to guide you.
Sub-heading: Qualified Charitable Distribution (QCD) - Important Note: QCDs are generally for IRAs, not 401(k)s.
While Qualified Charitable Distributions (QCDs) are an excellent strategy to satisfy RMDs without generating taxable income, it's important to note that QCDs are typically only allowed from IRAs, not 401(k)s. If you have a Traditional IRA at Fidelity, you can utilize this strategy. If you're looking to use your 401(k) funds for a charitable donation, you would first need to roll over the 401(k) funds to an IRA to perform a QCD. Consult a tax advisor for the most up-to-date rules.
Step 4: Monitor and Confirm Your RMD
Taking your RMD isn't a one-and-done event for most people. It's an annual requirement.
Sub-heading: Check Your Account Statements
Regularly review your Fidelity account statements. These statements will show any distributions taken and the remaining balance.
Confirm RMD completion: Fidelity's Retirement Distribution Center (if available for your 401(k)) should update to reflect how much of your RMD has been satisfied.
Sub-heading: Annual Review
Every year, typically in January, Fidelity will calculate your new RMD amount for the current year. This is because your account balance (as of December 31 of the previous year) and your life expectancy factor will change.
If you have automatic withdrawals set up, Fidelity will usually adjust the payment amounts accordingly. However, it's always a good idea to confirm.
Be mindful of the December 31st deadline for each year's RMD. For your first RMD only, you have until April 1st of the following year to take it. However, if you delay, you'll have to take two RMDs in that second year, which could push you into a higher tax bracket.
Step 5: Consider Tax Implications and Planning
RMDs are taxable income, and their impact on your overall financial situation shouldn't be overlooked.
Sub-heading: Federal and State Income Taxes
The money you withdraw as an RMD from a pre-tax 401(k) is taxed as ordinary income in the year you receive it. This means it's added to your other income sources (like Social Security, pensions, etc.) and taxed at your marginal tax rate.
This additional income could potentially push you into a higher tax bracket.
Be aware of state income taxes as well. Many states also tax retirement distributions.
Withholding: As mentioned in Step 3, strategically choosing your tax withholding is important. You can have Fidelity withhold taxes directly from your distribution, or you can pay estimated taxes throughout the year.
Sub-heading: Impact on Social Security and Medicare
Higher taxable income from RMDs can also affect the taxation of your Social Security benefits. A portion of your Social Security benefits may become taxable if your provisional income (which includes RMDs) exceeds certain thresholds.
It can also impact your Medicare Part B and Part D premiums. These premiums can increase if your modified adjusted gross income (MAGI), which includes RMDs, exceeds certain income thresholds. This is known as the Income-Related Monthly Adjustment Amount (IRMAA).
QuickTip: Pause to connect ideas in your mind.
Sub-heading: Consulting a Tax Advisor
It cannot be stressed enough: Consult a qualified tax advisor or financial planner. They can help you:
Understand the specific tax implications of your RMDs based on your unique financial situation.
Develop strategies to minimize your tax burden, such as managing the timing of withdrawals or exploring Roth conversions (though Roth conversions of 401(k)s often require rolling the funds into an IRA first).
Ensure you are withholding the correct amount of taxes.
Final Thoughts
Taking your RMD from your Fidelity 401(k) is a fundamental part of responsible retirement planning. While it might seem daunting at first, by following these steps and leveraging Fidelity's resources, you can navigate the process smoothly and efficiently. Don't wait until the last minute! Being proactive will help you avoid penalties and maintain control over your retirement nest egg.
10 Related FAQ Questions
How to calculate my RMD from Fidelity 401k?
Fidelity generally calculates your RMD for you based on your account balance on December 31 of the prior year and your IRS life expectancy factor. You can usually find this calculated amount in your Fidelity NetBenefits account under a section like "Retirement Distribution Center."
How to set up automatic RMD withdrawals from my Fidelity 401k?
Log in to your Fidelity NetBenefits account, navigate to the withdrawal or distribution section for your 401(k), and look for options to set up "Automatic Withdrawals" or "RMD Systematic Withdrawals." You'll choose your frequency (annual, quarterly, monthly) and delivery method.
How to take a one-time RMD withdrawal from Fidelity 401k?
Log in to Fidelity NetBenefits, go to your 401(k) account, select the "Withdrawal" or "Distribution" option, choose "One-Time Withdrawal," enter the desired amount (at least your RMD), and select your delivery and tax withholding preferences.
QuickTip: Revisit this post tomorrow — it’ll feel new.
How to avoid penalties for not taking my Fidelity 401k RMD?
Ensure you withdraw at least your full RMD amount by the IRS deadline (December 31st each year, or April 1st of the following year for your first RMD). Setting up automatic withdrawals is a great way to avoid forgetting.
How to determine my RMD age for my Fidelity 401k?
Generally, RMDs start at age 73 if you turned 73 in 2023 or later. However, if you are still working for the employer sponsoring the 401(k) and are not a 5% owner, you might be able to delay RMDs from that specific plan until you retire. Always confirm your specific plan's rules with Fidelity or your plan administrator.
How to roll over my Fidelity 401k to an IRA to manage RMDs?
You can initiate a direct rollover from your Fidelity 401(k) to a Traditional IRA. This can sometimes offer more flexibility in managing RMDs, especially if you have multiple IRAs (where you can aggregate RMDs and take the total from one IRA) or wish to use strategies like Qualified Charitable Distributions (QCDs) which are generally IRA-specific. Contact Fidelity for rollover instructions.
How to handle taxes on my Fidelity 401k RMD?
RMDs from a pre-tax 401(k) are taxed as ordinary income. You can elect to have Fidelity withhold federal and state taxes from your distribution, or you can pay estimated taxes throughout the year. It's advisable to consult a tax advisor to determine the optimal tax strategy.
How to update my beneficiary information for RMD purposes on Fidelity?
You can typically update your beneficiary information online through your Fidelity NetBenefits account or by completing a beneficiary designation form. While beneficiary changes affect future RMD calculations, they won't typically impact the current year's RMD which is based on the prior year's data.
How to know if my Fidelity 401k RMD qualifies for the "still working" exception?
Contact your employer's HR department or the plan administrator for your Fidelity 401(k) to confirm if your specific plan allows for the "still working" RMD exception, and if you meet all the criteria (e.g., not a 5% owner).
How to use an in-kind transfer to satisfy my Fidelity 401k RMD?
An in-kind transfer (moving investments directly to a taxable account) might be an option to satisfy your RMD without liquidating assets. However, this is less common for 401(k)s compared to IRAs. You must confirm with Fidelity if this is an available option for your specific 401(k) plan. Even with an in-kind transfer, the value of the transferred assets is still taxable income.
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