- Investment Products
- Individual IRAs
General Information
- What is a Rollover IRA?
- How long does it take to roll my retirement plan assets to a Fidelity IRA?
- Will I be better diversified by keeping my money in more than one place?
- Can I roll my retirement plan assets into a Traditional IRA?
- Will I owe taxes on my Rollover?
- Can I move an existing IRA from another institution to Fidelity?
- What should I do if my former employer’s 401(k) was recordkept by Fidelity?
Retirement Plan Distributions
- Can I roll over the distribution check my former employer’s plan administrator sends me?
- I already received a check made payable to me – and 20% was withheld. If I roll over my money now, can I get that 20% back?
- Can I roll over all the money in my former employer-sponsored retirement plan account?
- Can I move my former employer–sponsored retirement plan assets into a Roth IRA?
- What if I need my former employer-sponsored retirement plan money to pay for living expenses?
- Can I add more money to my IRA later?
- Can I leave my former employer–sponsored retirement plan assets in my current plan indefinitely?
- What is Net Unrealized Appreciation (NUA)?
- When is a Net Unrealized Appreciation (NUA) strategy favorable?
General Information
What is a Rollover IRA?
A Rollover IRA is an Individual Retirement Account that is often used by people who have changed jobs or retired and have assets accumulated in their employer–sponsored retirement plan.
Eligible distributions from such plans can be rolled over directly into a Fidelity IRA without incurring any tax penalties, and assets remain invested tax–deferred. Consolidating multiple employer-sponsored retirement plan accounts into a single Rollover IRA can make it easier to allocate and monitor your retirement assets.
TopHow long does it take to roll my retirement plan assets to a Fidelity IRA?
A rollover takes three steps: Opening the appropriate IRA, contacting your former employer(s) or the recordkeeper of your former employer’s plan and providing what they may require to process the distribution, and moving the money into your new Fidelity IRA. Note that if you have an existing IRA at Fidelity, you can roll your assets into that account. Refer to related question in FAQs for more information.
Opening a Fidelity IRA can take between 15 and 30 minutes. Then you’ll need to reach your former employer or the recordkeeper of your former employer's plan, and they will send you a form for you to fill out that directs them to move your retirement assets to Fidelity. (A Fidelity Rollover Specialist can help by calling your employer’s plan recordkeeper while you are on the line and communicating your needs to them.) Once that paperwork is finished, it is up to your former employer's plan administrator to move the money. This may take several weeks.
TopWill I be better diversified by keeping my money in more than one place?
Portfolio diversification comes from spreading your money out over different kinds of investments, including stocks, bonds, and cash, which generally reduces risk without sacrificing potential returns. If your retirement plan offers several different kinds of investments, you will have more options for staying diversified within your account. However, diversification does not ensure a profit or guarantee against loss.
TopCan I roll over assets into my Traditional IRA?
Yes. If you choose to roll additional assets into a Traditional IRA, your ability to roll these assets to a new employer’s retirement plan in the future depends on what that plan allows. Contact your tax advisor for more information.
TopWill I owe taxes on my Rollover?
There are three ways to roll over your assets from your former employer–sponsored retirement plan to a Fidelity IRA, and the tax implications may be different depending on which you choose to do.
Direct Rollover. In this situation, the assets go directly from your employer–sponsored retirement plan to the IRA via a trustee-to-trustee transfer.
60–Day Rollover. You can withdraw your former employer–sponsored retirement plan assets and then roll them over into a Fidelity IRA. You must complete the rollover within 60 days of receiving the distribution to avoid current income taxes. You will be subject to mandatory 20% withholding for federal income tax, which you would have to replace if you want to roll over your entire distribution to your Fidelity IRA. If you hold the assets for more than 60 days, your distribution will be subject to current income taxes and a 10% early withdrawal penalty if you are under age 59½.
Direct Roth Conversion. You may be eligible to convert your pre–tax assets from your employer sponsored retirement plan directly to a Roth IRA. The conversion is subject to ordinary income tax, and current year MAGI limits apply. Contact your tax advisor for more information.
For a more complete explanation of your options when you receive a retirement plan distribution, review Job Changer Distribution Options.
You may want to hold Rollover IRA funds separately from your Traditional IRA assets so that you have the flexibility to roll over your Rollover IRA assets in a new employer–sponsored plan in the future.
TopCan I move an existing IRA from another institution to Fidelity?
Yes. There are two methods.
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Direct (custodian–to–custodian) Transfer. By completing a Fidelity Transfer of Assets Form in addition to a Fidelity New IRA Account Application, you can authorize Fidelity to accept the transfer of your IRA from another institution to a Fidelity IRA.
- 60–Day Rollover. You can withdraw your IRA from the other institution and roll it over to a Fidelity IRA. You must complete the rollover within 60 days of receiving the distribution to avoid income taxes and, if you are under age 59½, the 10% IRS early–withdrawal penalty. Only one rollover is allowed per IRA in any 12–month period.
What should I do if my former employer’s 401(k) was recordkept by Fidelity?
If you would like to roll over a former employer’s retirement savings plan that is recordkept by Fidelity, please call a Rollover Specialist at 1–800–FIDELITY for assistance.
TopRetirement Plan Distributions
Can I roll over the distribution check my former employer’s plan administrator sends me?
Yes, but if your company plan makes the check payable to you, 20% of your eligible retirement plan distribution will be withheld for federal income taxes. The only way to avoid this withholding is to have your former employer’s plan administrator make your distribution check payable to the financial institution you've chosen as custodian for your new IRA. Either you or your former employer’s plan administrator should then send this check directly to the financial institution.
TopI already received a check made payable to me – and 20% was withheld. If I roll over my money now, can I get that 20% back?
You’ll have to replace the 20% that was withheld with your own savings if you want to roll over your entire distribution to your Fidelity IRA — all within 60 days of receiving the distribution. If you do, the 20% that was withheld is credited toward your income tax liability when you file your tax return. However, if you don’t have the cash to make up for the 20% withheld, the IRS will consider that 20% as a distribution, making it subject to taxes and a possible 10% early withdrawal penalty if you are under age 59½.
TopCan I roll over all the money in my former employer–sponsored retirement plan account?
Yes. You can roll over all the contributions made to your plan and any earnings on those contributions that haven’t yet been taxed (referred to as pre–tax contributions).
If you made contributions to your plan with income that had already been taxed (referred to as after-tax contributions), you can roll over those assets as well.
Minimum required distributions are not eligible to be rolled over to an IRA.
If you made Roth 401(k) contributions, you can roll these directly into a Fidelity Roth IRA.
To determine how much of your contributions and earnings were pre–tax versus after-tax, review the statements you received, or ask your current employer’s Benefits Office for assistance. It is your responsibility to keep track of after–tax contributions on IRS Form 8606. Consult your tax advisor if you have questions.
TopCan I move my former employer–sponsored retirement plan assets into a Roth IRA?
Yes, Roth elective deferrals can be rolled into a Roth IRA. In addition, effective 1/1/08 you may be eligible to directly convert pre-tax assets from qualified employer–sponsored retirement plans to a Roth IRA. Learn more about Roth IRAs.
TopWhat if I need my former employer-sponsored retirement plan money to pay for living expenses?
Depending on your situation, you may want to roll your retirement plan assets into a Fidelity IRA. If you need money to pay for expenses, you can withdraw what you need, when you need it. A withdrawal from a Rollover or Traditional IRA is subject to ordinary income tax, and may be subject to a 10% early withdrawal penalty if you are under 59½. Minimum required distributions must begin by April 1 of the year following the year in which you turn 70½. Ask your tax advisor if there are any circumstances which would cause your distribution to be eligible for special tax treatment.
TopCan I add more money to my IRA later?
Yes. You can add money to your IRA either with annual contributions or additional employer-sponsored retirement assets. Some people choose to make their annual contributions to their IRA so that they only have to keep track of one account. This may be right for you if you have no desire to roll these assets back to a qualified retirement plan at a future employer. Assets can be commingled and still be eligible to roll into another employer plan in the future; however, it is at the discretion of the receiving plan to determine what type of assets can be rolled over.
TopCan I leave my former employer–sponsored retirement plan assets in my current plan indefinitely?
No. Generally, you must begin to take withdrawals, known as minimum required distributions (MRDs), from all your retirement accounts (excluding Roth IRAs) no later than April 1 of the year following the year in which you turn age 70½. Check with your former employer to see if additional restrictions exist or learn more about calculating MRDs.
TopWhat is Net Unrealized Appreciation (NUA)?
When a lump-sum distribution of company stock is taken from a retirement plan, ordinary income taxes are due only on the cost basis of those securities, not the current fair market value. The difference between the cost basis and the current fair market value, or the Net Unrealized Appreciation (NUA), is taxed only when the securities are sold and only at the lower long–term capital gains tax rate.
TopWhen is a Net Unrealized Appreciation (NUA) strategy favorable?
For participants who own employer stock that has grown in value from their original cost, it may be beneficial to adopt a NUA strategy for the employer stock. From a tax perspective, it is generally more favorable for participants to roll over retirement plan assets to an IRA or new employer-sponsored plan rather than take a lump–sum distribution. For participants who have large amounts of appreciated company stock, however, it may be more beneficial to take a lump–sum distribution of company stock instead. Consult your tax advisor for more information.
Hypothetical Examples:
- An individual owns 1,000 shares of company stock with a current fair market value of $80,000
- An individual paid $20 per share for a cost basis of $20,000
- An individual’s Net Unrealized Appreciation is $60,000 ($80,000 – $20,000)
If an individual adopts a NUA strategy and takes a lump–sum distribution of the employer stock, he will owe income tax on the $20,000 (+ a 10% premature distribution penalty if he is under age 59½). Assuming a 25% federal tax, 5% state tax, and 10% premature distribution penalty, the individual would pay $8,000 in taxes for the year of the lump–sum distribution. The $60,000 of appreciation would not be taxed until the securities were sold and would only be taxed at the then–current long–term capital gains rate, which is currently 15%. Appreciation above the NUA may be taxed as a short term or long term capital gain depending on the actual holding period.
If an individual elected to roll over the company stock to an IRA and then eventually take a distribution, even if after age 59½, an $80,000 distribution would result in a $24,000 tax bill in a single year (assuming a 25% federal tax rate and a 5% state tax rate).
NUA Guidelines
- You must take a lump–sum distribution of all assets in the plan to qualify. You may elect, however, to roll over the non-employer stock securities to an IRA for continued tax–deferred growth.
- The employer stock must move in–kind from your plan to a brokerage account (i.e., keeping the same investments).
- To preserve your retirement savings, it may be advantageous to pay the taxes due on the cost basis from another source of money.
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