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Is a Rollover IRA at Fidelity Right for You?


Is a Rollover IRA at Fidelity Right for You?

Maybe you've got an old 401(k) (or two) and have no idea what to do with it.

Instead of leaving it sitting in your old employer's account gathering dust, you may consider rolling it over to an IRA account at Fidelity.

When it comes to rollovers, perhaps the most crucial decision you have to make is where to invest your money.


Your investments are an integral component of your retirement plan, after all. You can do your rollover at almost any bank or brokerage firm, but the proper financial custodian can make or break your experience.

As a registered investment advisor, we have the flexibility to use the best custodians for our clients. We often use Fidelity and have been very happy with the platform and quality of service our clients receive.


Download Free: Should I Rollover My Old 401 (K)? [New for 2021]

With so many options, is a Rollover IRA at Fidelity right for you?


What's A Rollover IRA?


When you leave an employer, there are several ways to handle your 401(k).

You can cash it out, but that is rarely the best choice. That’s like hitting the reset button on your retirement because you will have to pay taxes and penalties on the amount you withdraw.

You could also let it sit in your former employer's plan, but there are lot of reasons your old 401(k) may not be the best option to grow your money long-term, including:


  • Limited investment options

  • Potentially higher costs, depending upon the 401(k) plan

  • After-tax 401(k) money may be better off in a Roth IRA

  • Lack of flexibility on making withdrawals in retirement (strict RMDs)

A rollover IRA may help address these concerns. A rollover IRA allows you to transfer money from a previous employer-sponsored plan like your 401(k) into an IRA. Because it isn’t a distribution, you won’t owe taxes or penalties (unless you roll pre-tax funds into a Roth IRA), and the money will continue to work for you.

You can roll your money into a traditional or Roth IRA. Since both a Traditional IRA and 401(k) are tax-deferred investments, you can typically roll the funds over tax-free. While you would pay taxes on a full or partial rollover to a Roth IRA, there could be many long-term tax benefits to consider. Be sure to discuss your options with your tax advisor.

The choice depends on your situation, goals, and contribution source. You can gain a better sense of which is best for you by downloading our free guides:


There are several good reasons to roll your 401(k) into an IRA, but a potential downside is that you lose some protection from creditors.

Money in accounts that are covered by the Employee Retirement Income Security Act (ERISA) typically cannot be seized by creditors if you are sued. This may not be a top concern, but it’s worth knowing that creditor protection rules are different for Rollover IRAs.


Another consequence is that in most cases, you have to be 59 1/2 to withdraw from your IRA. Unqualified distributions may lead to early withdrawal penalties, which could eat into your retirement savings.


IRA contribution limits are also far below 401(k) contribution limits—$6,000 and $19,500 respectively for 2021.

How Can A Rollover IRA Benefit Your Investment Plan


So what are the benefits of rolling over a 401(k) to an IRA at Fidelity?

First of all, you’ll likely have access to a broader array of investment options like mutual funds, low-cost exchange-traded funds (ETFs), real estate investment trusts, and more. Such flexibility means you can create an investment plan and allocation strategy that is completely customized to you and your goals without having to cut corners due to a limited set of choices.

There are administrative fees associated with operating a 401(k). These sometimes get passed to plan participants, so it’s possible that your investment fees will be lower in an IRA as well. Investment fees are a major contributing factor to your long-term investment performance, so that’s a big perk.

In exchange for assuming a small risk from creditor liability, rolling over an ERISA-protected 401(k) plan may provide you with greater diversification at a lower cost.

Then, there is the convenience and simplicity that come with investing in an IRA. You’ll likely change employers multiple times throughout your working life. Combining retirement accounts into a single IRA each time makes things easier to track and manage.

It also reduces paperwork because each account comes with statements, investment information, and regular updates. Consolidating old 401(k)s to IRAs also simplifies the withdrawal and required minimum distribution processes when the time comes.

Top Reasons To Consider a Fidelity IRA


There are several benefits to opening your rollover IRA at Fidelity.


Fidelity investments offer some of the widest range of investment options in its commission-free lineup. Any US stock and ETF can be bought or sold for no transaction fee, and index funds have no internal expenses.

Having plenty of investment options is incredibly valuable. We’ve had several clients come to us with heavily concentrated positions of their own company stock in a 401(k). We’ve been able to help them diversify and protect their savings by rolling it into an IRA at Fidelity. One client, in particular, stood to lose nearly half of their savings in a concentrated company stock position!

With over $10 trillion in assets, Fidelity brokerage services LLC has enough depth and stability for you to be comfortable that your money is secure.

Fidelity’s interface is incredibly user-friendly too. When you log in, you can easily view your Fidelity account balances and positions, or place trades to rebalance your portfolio. Head on over to fidelity.com to see for yourself. It’s straightforward to integrate your Rollover IRA at Fidelity into the rest of your financial plan to maintain the consistency you need to meet your goals.

We can help you as well.


Whether it’s a Rollover IRA at Fidelity, Schwab, or another custodian, we can help you create a tailored investment management strategy that considers your goals, risk preferences, and time horizon and then make sure it stays efficiently balanced, so you don’t get off track.


Contact us for a free consultation.

 


Disclosures:


Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital.

The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.

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