Introduction
If you’re leaving your job or looking for better investment options, rolling over your Fidelity 401(k) to an IRA can help you save on fees, gain more investment flexibility, and maximize your retirement savings.
In this guide, we’ll walk you through the step-by-step process of rolling over your Fidelity 401(k) to an IRA, discuss key benefits, and share real-life case studies to help you make an informed decision.
1. Why Roll Over a Fidelity 401(k) to an IRA?
Rolling over your 401(k) into an IRA gives you more control over your retirement savings. Here’s why many investors choose this option:
✅ More Investment Options – IRAs offer stocks, bonds, ETFs, and mutual funds, while 401(k)s have limited choices.
✅ Lower Fees – Fidelity IRAs generally have lower expense ratios compared to employer-sponsored 401(k) plans.
✅ Better Tax Strategies – Roth IRA rollovers allow for tax-free growth and withdrawals.
✅ No Required Minimum Distributions (RMDs) for Roth IRAs – Unlike 401(k)s, Roth IRAs have no mandatory withdrawals at age 73.
Case Study: Linda’s 401(k) Rollover to a Roth IRA
- Linda (55) left her job and wanted to reduce future tax liabilities.
- She rolled over her Fidelity 401(k) to a Roth IRA, paying taxes upfront.
- Now, her retirement savings grow tax-free, and she won’t owe taxes on withdrawals.
Key Takeaway: Rolling over to a Roth IRA can be a smart tax move if you expect higher tax rates in the future.
2. Step-by-Step Guide to Rolling Over a Fidelity 401(k) to an IRA
Step 1: Choose the Right IRA
Before starting your 401(k) rollover, decide whether you want a Traditional or Roth IRA:
| IRA Type | Best For | Tax Treatment |
|---|---|---|
| Traditional IRA | Those who want to defer taxes | Contributions are pre-tax, but withdrawals are taxed in retirement |
| Roth IRA | Those expecting higher future taxes | Pay taxes now, but withdrawals are tax-free in retirement |
✔ If you want tax-free withdrawals later, choose a Roth IRA.
✔ If you want to defer taxes, go with a Traditional IRA.
Step 2: Open an IRA Account
If you don’t already have one, open an IRA at Fidelity, Vanguard, Charles Schwab, or another brokerage. Choose a provider based on fees, investment options, and customer service.
Step 3: Request a Direct Rollover
✔ Call Fidelity’s 401(k) customer service or log in to your Fidelity account.
✔ Request a direct rollover to your IRA (this avoids taxes and penalties).
✔ Provide your new IRA account details to Fidelity.
✔ Fidelity will transfer funds directly to your IRA provider.
🚨 Avoid Indirect Rollovers: If Fidelity sends a check to you instead of your IRA provider, you must deposit it within 60 days or risk paying taxes and penalties.
Step 4: Select Your IRA Investments
Once your 401(k) balance is in your IRA, invest in: ✔ Index Funds & ETFs – Low-cost, long-term growth.
✔ Stocks & Bonds – Diversify based on risk tolerance.
✔ Target-Date Funds – Automatically adjust based on retirement year.
Case Study: Robert’s 401(k) Rollover to a Fidelity IRA
- Robert (50) had a Fidelity 401(k) but wanted more investment options.
- He rolled over his 401(k) to a Fidelity IRA, gaining access to low-cost ETFs.
- Now, his investments grow with fewer fees and more flexibility.
Key Takeaway: A direct rollover ensures you don’t pay unnecessary taxes or penalties.
3. Tax Implications of a 401(k) Rollover
A. Rolling Over to a Traditional IRA (Tax-Deferred)
✔ No immediate taxes owed.
✔ You will pay income tax on withdrawals in retirement.
✔ Required Minimum Distributions (RMDs) start at age 73.
B. Rolling Over to a Roth IRA (Tax-Free Growth)
✔ You pay taxes upfront but get tax-free withdrawals in retirement.
✔ No RMDs – leave money in as long as you want.
✔ Best if you expect higher taxes in the future.
🚨 Important: If you roll over from a Traditional 401(k) to a Roth IRA, expect to pay taxes on the amount transferred.
Case Study: Alice’s Roth IRA Conversion Strategy
- Alice (58) rolled over her 401(k) to a Roth IRA in smaller increments to avoid a high tax bill.
- By converting $20,000 per year, she minimized taxes.
- Now, she has a tax-free retirement income.
Key Takeaway: Spreading out Roth conversions over multiple years can reduce tax burdens.
4. Common Mistakes to Avoid
❌ A. Withdrawing Instead of Rolling Over
✔ Always choose a direct rollover to avoid penalties.
✔ If you withdraw funds instead of rolling them over, you may owe income tax and a 10% penalty.
❌ B. Forgetting About Required Minimum Distributions (RMDs)
✔ Traditional IRAs require RMDs starting at age 73.
✔ Roth IRAs do not require RMDs, making them a great tax-free option.
❌ C. Not Considering Fees
✔ Compare fees between different IRA providers.
✔ Look for low-cost ETFs and index funds to maximize savings.
Case Study: Tom’s 401(k) Rollover Mistake
- Tom (60) withdrew funds from his 401(k) instead of rolling them over.
- He faced a huge tax bill and an early withdrawal penalty.
- Now, he regrets not choosing a direct rollover.
Conclusion: Take Control of Your Retirement Savings
Rolling over a Fidelity 401(k) to an IRA offers more investment choices, lower fees, and greater tax advantages. Whether you choose a Traditional IRA for tax deferral or a Roth IRA for tax-free withdrawals, making the right decision now can maximize your retirement savings.