Options to Consider When Rolling Over a 401k from Fidelity

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For many generations, your first job was also your last job. An employee would remain at a single company for 30 years and then retire with a lot of fanfare. The days of giant retirement parties and corporate gifts are long gone.

Today, workers stay at an employer for an average of 4.3 years. Over an entire career, the average worker changes jobs 12 times. This means that a worker can accumulate 12 different retirement accounts during their career.

In this article we will discuss your options when rolling over a 401k from Fidelity.

401k Rollover Options with Fidelity

Twelve accounts can be difficult to juggle.

When you leave your job, you may wonder what you should do with your old retirement account.

You have several options:

What is a 401k Rollover?

When you leave your job, you will have the option to roll over the funds. Before you decide what to do with these funds, it's important to understand what a rollover is and how it can affect your financial health. 

When you initiate a rollover, the custodian trustee of your old 401(k) will withdraw the funds and send it to you as a paper check or direct deposit. Once you receive the funds, the clock starts ticking.

You have 60 days to deposit the money into another eligible retirement account. According to tax laws, the 60-day window includes weekends and holidays, so you should plan to deposit the funds as soon as possible.

If you don't complete the rollover in time, the IRS will count it as a withdrawal. For investors under 59 1/2 years old, the IRS will consider it an early withdrawal and charge taxes. They also will apply a 10% penalty.

In some cases, you may be able to apply for a waiver or an extension to give yourself more time to reinvest. The IRS may grant an automatic extension in some situations, such as an error by the financial institution.

If you don't qualify for an automatic extension, then you'll have to apply for a discretionary extension with the IRS. A discretionary extension can be an expensive process.

In addition to paying a large fee to the IRS, you also need to pay a professional to complete the request forms.

Novice investors may try to claim ignorance of the rollover rules, but unfortunately, the IRS doesn't count lack of knowledge as a valid excuse.

Even if the custodian of the previous account fails to inform you of the rollover period, you are still responsible for following the IRS's rules for rollovers.

Once you decide to roll over your old retirement account's funds into a new retirement account, you have several options.

Option 1: Roll Over Your Old 401(k) into a Traditional or Roth Gold IRA

Today, investors turn to gold because of its relative stability. During recessions, economic volatility, and political instability, gold prices often rise because investors move their funds into gold.

Investors often use gold and other precious metals as a hedge against inflation. When inflation rises, prices rise, and the currency-backed assets' value falls. Unlike currency-based assets, gold often retains its value during economic turmoil.

If you want to diversify your investment portfolio with gold, you can roll over your old retirement account into a Fidelity gold IRA. A gold IRA is a self-directed IRA.

In a self-directed IRA, the account owner instructs the custodian from the brokerage firm on how to invest the funds. The IRS has additional rules and regulations for gold IRAs.

The custodian's role is to help the account owner meet the tax reporting and paperwork requirements.

When you select a gold IRA, you can choose between a traditional gold IRA or a Roth IRA. If you choose a traditional gold IRA, you can use pre-tax funds to purchase gold. With a traditional gold IRA, your earnings grow tax-deferred.

Depending on your adjusted gross income and tax-filing status, you may be able to deduct part or all of your gold IRA contributions on your taxes.

Withdrawals from a traditional gold IRA face the same regulations as a withdrawal from a traditional conventional IRA. Early withdrawals may incur a penalty of 10%, in addition to taxes.

When you retire, you pay taxes based on your income tax bracket at the time of the withdrawal. According to the IRS rules, you must begin taking distributions from a traditional gold IRA at age 73.

A Roth gold IRA offers more flexibility than a traditional gold IRA. When you select a Roth gold IRA, you fund the account with post-tax dollars.

Because you already paid income taxes on the funds you invest in the Roth gold IRA, you will not pay income taxes when you withdraw funds from the account. The IRS also does not assess a penalty if you withdraw funds before retirement.

The IRS has rules around what you can purchase with a Roth gold IRA. For example, you can't use a Roth IRA to purchase collectibles like jewelry, artwork, baseball cards, or memorabilia.

Although you can purchase gold bars, coins, and bullion, you can't store these items in your home or property. A custodian must maintain possession of the physical gold in an approved IRS depository.

In addition to physical gold, you can use a Roth gold IRA to purchase other types of gold investments. Purchasing stock in gold-mining companies, gold retailers, and gold-processing companies is another way to diversify your portfolio with gold.

As the price of gold increases, the value of gold-related company stock also will rise. Investors also can purchase gold ETFs, but these ETFs may not withstand inflation and economic downturns the same way that physical gold can.

Depending on which brokerage firm you select for your gold IRA, there may be additional rules about funding and investing. Fidelity's gold investment accounts require a minimum $2,500 initial deposit.

Investors must purchase physical gold in whole ounces or whole numbers of coins. Fidelity limits the purchase of physical gold to Gold American Eagle, Gold American Buffalo, and gold bullion quality bars.

Investors who don't want physical gold but still want to diversify their portfolio can purchase mutual funds and ETFs.

Option 2: Roll Over Your Old 401(k) into Your New Employer's Retirement Account

When you change jobs, you may be excited for a fresh start. New jobs mean new responsibilities, new co-workers, and new benefits packages. Your new compensation plan may include an employer-sponsored retirement plan, like a 401(k).

If you work for a non-profit or government employer, your employer may offer a 403(b) or 457 plan. 

Many employees are familiar with a 401(k) plan, which is an employer-sponsored traditional or Roth IRA. With this type of plan, employees automatically contribute a portion of their paycheck into the retirement account.

Depending on which plan your new employer offers, this retirement plan can reduce your taxable income and lower your taxes. As your funds grow, you won't have to worry about paying taxes on the gains until you withdraw the funds. 

Company-sponsored retirement plans also may offer other advantages. Some companies match the employee's contribution up to a certain percentage. These contributions are also tax-deferred.

Investors can take advantage of this free money by investing the maximum amount that the company will match.

Option 3: Roll Over Your Old 401(k) into a Traditional or Roth IRA

When you leave your old employer, you can roll over your retirement funds into a retail IRA that is not employee-sponsored.

While employer-sponsored plans have lower investment fees than retail IRAs, your employer's retirement plans may have additional record-keeping fees.

Before you decide on a retail or employer's plan, compare the administrative and investment fees to see which plan is more expensive. A rollover IRA also may offer more investment options than an employer-sponsored plan.

Institutional plans may offer a customized portfolio that is only available to employees. These portfolios often have lower fees and enhanced returns.

Fidelity offers the Fidelity Rollover IRA and the Fidelity Go Rollover IRA. With the Fidelity Rollover IRA, you decide what to invest in and how to manage your funds. Some investment types may have additional fees.

You can take advantage of Fidelity's planning tools. Account advisors are available for no added fee. If your account has $250,000 or more, Fidelity may offer you a dedicated account advisor.

If you're a new or novice investor, you may be interested in the Fidelity Go Rollover IRA. In the Fidelity Go plan, Fidelity's account managers decide how to invest your funds based on your profile and risk tolerance.

If you have less than $25,000 in your account, Fidelity does not charge advisory fees. Once you reach $25,000 or more, Fidelity offers digital planning tools and one-on-one appointments with advisors.

Fidelity charges an annual fee for this service that is based on a percentage of your account's funds.

Option 4: Keep Your Funds in the Old Employer's Account  

When you leave your job, your employer may offer you the option of keeping your funds in the company's retirement account. This is a good option if the company offers a bespoke plan that matches your investment strategy and risk tolerance.

If this plan has lower fees than a retail IRA, you may want to leave the funds in the former employer's plan. 

If you plan on filing for bankruptcy, it may be wise to keep your funds in your former employer's retirement plan. Typically, creditors in a bankruptcy proceeding can't access funds in an employer-sponsored plan.

The court may be able to take funds from a retail IRA account.  If you keep your funds in your previous employer's plan, you may have several retirement accounts by the time you retire.

How Many Retirement Accounts Is Too Many?

Rolling over your old employer's retirement plan into another retirement account is an easy way to simplify your investments. You only need to keep track of one account.

When you retire, you will need to allocate your investments properly to ensure that you are receiving retirement income while still growing. With multiple accounts, allocating your investments correctly to maximize income and growth becomes more difficult.

A financial advisor can make recommendations, but their fees can be pricey. 

While having one retirement account is easier to manage, there are some disadvantages. Retirement accounts are subject to contribution limits and income caps. For 2023, the annual contribution limit is $6,500 for investors age 49 and under.

At age 50, that contribution limit increases to $7,500. Roth IRA accounts also have income caps based on your AGI and filing status. 

Opening multiple retirement accounts may pay off at retirement.

Since employer-sponsored plans often limit investment types, investors who want to diversify their portfolios further will find more options with self-directed IRAs, and retail IRAs. Self-directed IRAs may offer alternative investment types, including cryptocurrency.

Option 5: Take a Cash Withdrawal

Early withdrawals eliminate any potential gains. If you are below retirement age, the IRS also will assess a 10% penalty.

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