The Definitive Guide to Cancelling Your Fidelity 401(k) Plan
Have you been considering what to do with your 401(k) plan at Fidelity? Perhaps you've changed jobs, are nearing retirement, or simply want to consolidate your financial accounts. Whatever your reason, understanding the process of "cancelling" or, more accurately, managing your Fidelity 401(k) plan is crucial. It's not as simple as closing a checking account, as there are significant tax implications and different options to consider.
Ready to take control of your retirement savings? Let's dive into the step-by-step guide to navigating your Fidelity 401(k) options.
Understanding What "Cancelling" a 401(k) Means
First and foremost, it's important to clarify that you don't typically "cancel" a 401(k) plan in the same way you might cancel a subscription. A 401(k) is an employer-sponsored retirement account. When you refer to "cancelling" it, you likely mean one of the following:
Leaving an old employer's 401(k) plan: This is the most common scenario. When you leave a job, you have several choices for what to do with the funds in your former employer's 401(k).
Withdrawing funds: This is usually referred to as a "distribution" and comes with specific rules and potential penalties if done before retirement age.
Closing your Self-Employed 401(k) (if applicable): If you have a solo or self-employed 401(k) with Fidelity, the closure process might be more direct.
This guide will primarily focus on the most common scenario: managing your 401(k) after leaving an employer.
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| How To Cancel 401k Plan Fidelity |
Step 1: Assess Your Current Situation and Goals
Before you even touch a phone or click on Fidelity's website, take a moment to honestly evaluate your financial situation and what you hope to achieve. This is the most critical first step, as your decision will have long-term consequences.
Sub-heading: Why are you considering this action?
Did you leave your job? If so, when did you leave? This dictates your immediate options.
Do you need access to the funds immediately? Be aware of the potential penalties and taxes for early withdrawals.
Are you looking to consolidate accounts? Moving your funds to one place can simplify management.
Are you unhappy with your current investment options or fees? A rollover might offer more flexibility.
Are you nearing retirement? Your options expand significantly as you approach 59 ½.
Sub-heading: Gather Essential Information
Have the following details handy:
Your Fidelity 401(k) account number.
Your Social Security Number.
Your former employer's name.
Your current account balance and investment holdings.
Any statements or communications you've received from Fidelity regarding your 401(k).
Step 2: Understand Your Options After Leaving an Employer
Tip: The details are worth a second look.
If you've left your job, you generally have four main choices for your Fidelity 401(k):
Option 1: Leave Your 401(k) with Your Former Employer
Pros: This is often the path of least resistance. Your money remains invested, and you don't have to do anything immediately. If your balance is substantial (typically over $7,000, though this can vary by plan), your employer usually won't force you to move it.
Cons: You lose the ability to contribute to this plan. You might have limited investment options compared to an IRA, and you may incur ongoing administrative fees specific to the employer's plan. Accessing information or making changes might be less convenient than with a personal account. You also lose ERISA protection once you roll over to an IRA.
Option 2: Roll Over to a New Employer's 401(k)
Pros: Consolidates your retirement savings if your new employer offers a 401(k) plan. Funds remain in a tax-deferred account. This maintains the ERISA protection.
Cons: Your new 401(k) might have different investment options and fee structures. You'll need to check if your new employer's plan accepts rollovers and when you're eligible to participate.
Option 3: Roll Over to an Individual Retirement Account (IRA)
Pros: This is often the most popular choice for those seeking greater control and flexibility.
More Investment Options: IRAs generally offer a much broader selection of investments (stocks, bonds, mutual funds, ETFs) compared to employer-sponsored plans.
Lower Fees: You might find IRAs with lower administrative fees than some 401(k)s.
Consolidation: You can roll over multiple old 401(k)s into one IRA, simplifying your financial picture.
Control: You have direct control over your investments.
Cons: You lose the ERISA protection that 401(k)s offer. If you roll a traditional 401(k) into a Roth IRA, you'll owe taxes on the conversion.
Option 4: Cash Out (Take a Lump-Sum Distribution)
Pros: Immediate access to funds.
Cons: This is generally highly discouraged due to significant tax consequences and penalties.
10% Early Withdrawal Penalty: If you're under age 59 ½, you'll typically pay a 10% penalty on the withdrawn amount. There are some exceptions (e.g., Rule of 55 if you leave your job at or after age 55, certain medical expenses, disability), but these are specific.
Income Taxes: The entire distribution (except for any after-tax contributions) is typically treated as ordinary income in the year of withdrawal and added to your taxable income. This can push you into a higher tax bracket.
Loss of Future Growth: You permanently remove money that would have continued to grow tax-deferred for your retirement. This can significantly impact your long-term financial security.
Mandatory 20% Tax Withholding: Fidelity will typically withhold 20% of your distribution for federal income taxes. If you don't deposit the full amount (including the withheld portion) into a qualified retirement account within 60 days, the withheld amount will also be subject to taxes and penalties.
Step 3: Contact Fidelity
Once you've considered your options, it's time to reach out to Fidelity.
Sub-heading: Online or Phone?
You can usually initiate the process in a few ways:
Fidelity NetBenefits Website: For employer-sponsored plans, NetBenefits is your primary portal. Log in to your account. Look for sections related to "Withdrawals," "Loans," "Rollovers," or "Leaving Employment." The navigation can vary slightly, but these are common keywords.
Fidelity Customer Service: Call Fidelity directly. Their customer service representatives are equipped to guide you through the process. Have your account details ready. The general Fidelity customer service number is 1-800-343-3548. For workplace investing (401k plans), they may direct you to a specific department.
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Sub-heading: What to Expect During the Call/Online Process
Tip: Read at your own pace, not too fast.
Be prepared to provide:
Your identity verification (account number, SSN, etc.).
Your reason for wanting to move or withdraw funds.
Information about where you want the funds to go (e.g., new employer's 401(k) plan details, new IRA account number and institution name).
Fidelity will then provide you with the necessary forms and instructions. They might also outline any specific plan rules from your former employer.
Step 4: Complete the Required Paperwork/Online Forms
This step will vary significantly depending on the option you've chosen.
Sub-heading: For a Rollover to an IRA
Open an IRA (if you don't have one): If you're rolling into an IRA, you'll need to open one first. You can open a Rollover IRA, Traditional IRA, or Roth IRA with Fidelity itself or another financial institution. Ensure the IRA type matches your 401(k) type (e.g., Traditional 401(k) to Traditional IRA to avoid immediate taxes).
Request a Direct Rollover: This is the safest and most recommended method. Fidelity will transfer the funds directly to your new IRA custodian (or your new employer's 401(k) administrator) without the money ever passing through your hands. This avoids the 20% mandatory tax withholding and the 60-day rollover rule. You'll typically fill out a form authorizing this transfer, providing the receiving institution's details.
Indirect Rollover (Less Recommended): In an indirect rollover, Fidelity sends you a check. You then have 60 days from the date of receiving the funds to deposit the entire amount (including the 20% withheld for taxes, which you'll need to make up from other funds) into a new qualified retirement account. If you miss this deadline or don't deposit the full amount, the undeposited portion will be treated as a taxable distribution and subject to penalties. Avoid this method if possible.
Sub-heading: For a Rollover to a New Employer's 401(k)
The process is similar to an IRA rollover. You'll need the details of your new employer's 401(k) plan and their plan administrator. Fidelity will likely send the funds directly to the new plan.
Sub-heading: For a Cash-Out/Distribution
You will complete a distribution request form. Be prepared for Fidelity to explain the tax implications and penalties involved. They may require specific reasons for the withdrawal, especially for hardship withdrawals.
Step 5: Follow Up and Confirm
Once you've submitted the necessary forms, keep track of your request.
Processing Time: Processing times can vary. Electronic transfers (direct rollovers) might take a few business days, while checks could take longer (e.g., 3-5 business days for a check, plus mailing time).
Confirmation: Fidelity should provide you with confirmation once the transaction is complete. For rollovers, confirm with the receiving institution that the funds have arrived and been properly allocated.
Tip: Read in a quiet space for focus.
Important Considerations and Warnings
Taxes and Penalties: Always consult a tax advisor before making any withdrawal from a 401(k) or considering an indirect rollover. They can help you understand the full tax impact on your specific situation.
Vesting: Ensure you understand your vesting schedule if you're leaving a job. Only vested funds truly belong to you.
Hardship Withdrawals/Loans: While Fidelity offers hardship withdrawals and loans from 401(k)s, these are typically meant for extreme financial emergencies and come with strict IRS rules and often penalties. Explore all other options before considering these.
Fees: Be aware of any fees associated with your 401(k) plan, both for maintaining it and for any distributions or rollovers. Fidelity generally does not charge a fee to close a brokerage account, but some 401(k) plans might have specific fees.
Remember, your 401(k) is a powerful tool for retirement savings. Carefully consider the long-term impact of any decision you make.
10 Related FAQ Questions
How to transfer my Fidelity 401(k) to an IRA?
Quick Answer: Contact Fidelity to request a direct rollover from your 401(k) to your new or existing IRA account. You'll need to provide your IRA account details. This is the most common and tax-efficient way to manage your 401(k) after leaving an employer.
How to avoid penalties when taking money from my Fidelity 401(k)?
Quick Answer: The primary way to avoid penalties is to wait until age 59 ½ for withdrawals. Other penalty-free exceptions include leaving your employer in the year you turn 55 or later ("Rule of 55"), qualified disability, certain medical expenses, or court-ordered distributions (QDROs). Consult a tax professional for specific situations.
How to know if my Fidelity 401(k) is eligible for a rollover?
Quick Answer: Most 401(k)s are eligible for rollover after you separate from your employer. Fidelity can confirm your specific plan's eligibility. Generally, it takes about two weeks after leaving a company for the 401(k) to be eligible for a rollover.
How to find my Fidelity 401(k) account number?
Quick Answer: Your 401(k) account number can typically be found on your Fidelity NetBenefits online account, on your periodic statements from Fidelity, or by calling Fidelity customer service.
Tip: Use this post as a starting point for exploration.
How to determine if a direct rollover or indirect rollover is better for my Fidelity 401(k)?
Quick Answer: A direct rollover is almost always better as it sends funds directly from Fidelity to your new retirement account, avoiding mandatory 20% tax withholding and the 60-day rule. An indirect rollover involves you receiving a check, requiring you to redeposit the full amount within 60 days to avoid taxes and penalties.
How to withdraw money from my Fidelity 401(k) for a hardship?
Quick Answer: Fidelity offers hardship withdrawals for immediate and heavy financial needs (e.g., medical expenses, preventing eviction/foreclosure, higher education). You'll need to apply and provide documentation to prove the hardship, and these withdrawals are generally subject to income taxes and potentially a 10% penalty.
How to close a Fidelity Self-Employed 401(k) plan?
Quick Answer: If you have a self-employed 401(k), you'll typically need to liquidate the investments and distribute the funds, either to yourself (subject to taxes/penalties if early) or by rolling them over to an IRA or another qualified plan. Contact Fidelity's small business team for precise steps and forms.
How to understand the tax implications of cashing out my Fidelity 401(k)?
Quick Answer: Cashing out your 401(k) before age 59 ½ typically incurs a 10% early withdrawal penalty on top of ordinary income taxes. The entire amount withdrawn (excluding any after-tax contributions) is added to your taxable income for the year. A mandatory 20% federal tax withholding also applies.
How to consolidate multiple old 401(k)s into one Fidelity IRA?
Quick Answer: You can typically roll over multiple old 401(k)s from different employers into a single Rollover IRA at Fidelity. Contact Fidelity, and they will help you initiate direct rollovers from your previous plan administrators to your new Fidelity IRA.
How to track the status of my Fidelity 401(k) rollover?
Quick Answer: After initiating a rollover, you can usually track its status by logging into your Fidelity NetBenefits or Fidelity.com account, or by calling Fidelity customer service. For direct rollovers, you should also confirm with the receiving institution once the expected processing time has passed.
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