• Print
  • Default text size A
  • Larger text size A
  • Largest text size A

IRA FAQs: Rollovers

General information

  • What is a Rollover IRA?

    A Rollover IRA is a Traditional Individual Retirement Account (IRA) that is often used by those who have changed jobs or retired and have assets accumulated in their employer-sponsored retirement plan, such as a 401(k).

    Eligible distributions from such plans can be rolled over directly into a Fidelity Rollover 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.

  • What do I need to do to roll over my retirement plan assets to a Fidelity IRA?

    A rollover takes three steps:

    1. Open the appropriate IRA.*
    2. Move your money to Fidelity—to do this, you will need to initiate a rollover from your former employer’s plan.
    3. Choose your investments in the Rollover IRA.

    Call 800-343-3548 and a rollover specialist will help you every step of the way. They can answer your questions, plus help you initiate the distribution and complete any paperwork that may be required.

    The process of opening the new account is usually quick and easy; however, because the ways employer-sponsored plans handle distributions vary, the overall process may take several weeks.

    *Note that if you have an existing IRA at Fidelity, you can roll your assets into that account (see the next question).

  • Can I roll over assets into my Traditional IRA?

    Yes, if you choose to roll additional assets into a Traditional IRA where you have previously made nondeductible contributions, 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.

  • Will I owe taxes on my rollover?

    Generally, there are no tax implications if you complete a direct rollover and the assets go directly from your employer-sponsored plan into a Rollover or Traditional IRA via a trustee-to-trustee transfer.

    However, if you choose to convert some or all of your savings in your employer-sponsored retirement plan directly to a Roth IRA, the conversion would be subject to ordinary income tax. Contact your tax advisor for more information.

    If you withdraw the assets from your former employer-sponsored retirement plan, the check is made payable to you, and taxes are withheld, you may still be able to complete a 60-day rollover. Within 60 days of receiving the distribution check, you must deposit the money into a Rollover IRA to avoid current income taxes.

    If taxes were withheld from the distribution, you would have to replace that amount 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.

  • Can I move an existing IRA from another institution to Fidelity?

    Yes, visit IRA Transfers for a quick overview of the online process.

  • 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 800–343-3548 for assistance.

  • Can I roll my money into a Roth IRA?

    Yes, most people are eligible to convert their non-Roth retirement savings, such as a 401(k) or 403(b), to a Roth IRA. Although converting to a Roth IRA is a taxable event, the conversion has the potential to help minimize future taxes and maximize retirement savings. There are several factors to consider when deciding if converting to a Roth IRA may be right for you. Call Fidelity for more information about converting your savings to a Roth IRA.

Retirement plan distributions

  • 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?

    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.

  • Can I roll over all the money in my former employer-sponsored retirement plan account?

    Generally, 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.

    If you are age 70½ or over and subject to a minimum required distribution (MRD), you must satisfy the MRD from the plan prior to initiating a rollover. Once the MRD has been satisfied, you may roll over the remainder of the plan account.

    If you made Roth 401(k) contributions to a Designated Roth Account, you can only roll these directly into a Fidelity Roth IRA.

    To determine how much of your contributions and earnings were pretax versus after-tax, review the statements you received, or ask your previous 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.

  • How do I know if I am eligible for a rollover?

    Generally there must be a distributable event. The most common eligibility event is when an individual leaves the service of their employer. Other reasons may include attainment of age 59½, death, or disability. Please contact your plan to determine whether or not you are eligible for a distribution and, therefore, a rollover.

  • What 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. A distribution from your retirement plan assets may not be subject to the 10% penalty if you are age 55 or older. Ask your tax advisor if there are any circumstances which would cause your distribution to be eligible for special tax treatment.

  • Can I add more money to my IRA later?

    Yes, you can add money to your IRA with either annual contributions or you can consolidate former employer-sponsored retirement plan assets or IRAs. 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.

  • Can 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 there are any other rules that may require the money to be taken out prior to you turning age 70½. Learn more about MRDs.

  • What 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.

  • When is a Net Unrealized Appreciation (NUA) strategy favorable?

    For participants who own employer stock that has grown in value from its original cost, it may be beneficial to adopt an NUA strategy for the employer stock. Generally, from a tax perspective, it is more favorable for participants to roll over their retirement plan assets to an IRA or new employer-sponsored plan rather than take a lump-sum distribution. However, for participants who have large amounts of appreciated company stock, it may be more beneficial to take a lump-sum distribution of company stock instead because it allows them to pay taxes now at a lower rate. 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 (plus a 10% premature distribution penalty if 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.

Questions?

More information

The tax information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. Fidelity does not provide legal or tax advice. Fidelity cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws which may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. Fidelity makes no warranties with regard to such information or results obtained by its use. Fidelity disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.
623504.1.0