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Ask Fidelity

We know saving for retirement is a top priority for many investors. No matter where you are in the planning process, you may have questions. We can help. Check out the questions we've already answered, or if you're a Fidelity customer, submit your own. We'll post replies to selected questions on a weekly basis.

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Q&A for Answers to Customer Retirement Questions Category

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Retirement Investing
 
1 answer

Withdrawal from 401K

Q: 
I need to make a withdrawal from my 401K. Since I am only 52, I know I will be subject to a 10% penalty and taxes on this withdrawal. When (what time frame) am I required to pay the 10% penalty and taxes? Does it have to paid at the time of withdrawal or just by the end of the year?
Age: 45 to 54
1 week, 2 days ago
by
 - Irmo, SC, USA
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A: 
Hello Kimberly,

Thanks for your question regarding an early distribution from your 401(k). Typically, the taxes and potential penalty related to an early withdrawal from a retirement account, like a 401(k), can be handled separately. Generally, the withdrawal will be subject to some mandatory federal, and, depending on the state where you reside, some mandatory state withholding at the time of the withdrawal. The potential 10% penalty can be paid up to your tax filing deadline for the year in which the early withdrawal took place.

You don’t state the reason for making a withdrawal from your 401(k) but I wanted to let you know that in some instances, the 10% penalty is waived. Those exceptions are listed on this page from Fidelity.com: https://www.fidelity.com/taxes/tax-...

Another option you may want to consider is taking a loan from your 401(k). Taxes and penalties are not assessed for a loan, and you have five years to pay it back, with interest that is also added to your account. There are pros and cons, however, to taking a 401(k) loan and those are discussed in this Fidelity Viewpoints® article: https://www.fidelity.com/viewpoints...

I hope this information is helpful.

Sarah
3 days ago
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2 weeks, 5 days ago
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A: 
Thanks for your question. You should not have to adjust your tax return if you made a prior year Roth IRA contribution for 2015 after you filed your taxes. Since a Roth contribution is not tax deductible but does grow tax-free and can be withdrawn tax-free if you meet the requirements, there is no need to recognize it on your tax return. Keep in mind, however, that the deadline for 2015 contributions to both Roth and Traditional IRAs is April 18, 2016.

For your own purposes, I suggest that you record the amount contributed in the event that you ever want to take a distribution before age 59½. Contributions are not subject to tax or penalty on withdrawal, but earnings can be.

Ken
2 weeks, 3 days ago
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Q: 
I want to roll over my 401k Wells Fargo acct. from my previous employer (no longer work for the company) into my Roth IRA at Fidelity. Will I be penalized for taxes for doing this? I also have a standard IRA acct. with Fidelity that I can roll the 401k into.
3 weeks, 2 days ago
by
 - Houston, TX, USA
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A: 
Thanks for your question. Moving funds from your former employer’s 401(k) into a Roth IRA is certainly permissible, but it’s likely that all or part of the rollover would be considered a Roth conversion, and thus a taxable event.

A Roth conversion refers to moving funds out of a pre-tax IRA or 401(k) and depositing them into a Roth IRA. There aren’t penalties applied to this type of transaction, but it is taxable. When funds are contributed to a Roth IRA, they’re deposited after-tax, potentially grow tax-free and, provided distributions are qualified, those are also tax-free.

This differs from funds deposited in a Traditional IRA or 401(k) in that funds in those types of accounts are typically deposited pre-tax, potentially grow tax-deferred and are then taxed at your ordinary income rate when withdrawn in retirement.

If you decided to roll your old 401(k) to your Roth IRA, the rollover amount would be taxed at your ordinary income rate and you’d be liable to pay that amount to the IRS when you file your return for this year.

If you decide not to move your retirement savings from your old 401(k) to a Roth IRA, the Traditional IRA you mentioned can receive them, penalty and tax-free. Here’s a page on Fidelity.com that further discusses details around Roth conversions and whether one may be right for you. https://www.fidelity.com/taxes/tax-...

I hope this information is helpful for you. Thank you again for your question.

Sarah
2 weeks, 2 days ago
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Q: 
My son works part time with a union that provides pension benefits and part time as an individual contractor. Does the work with the pension plan preclude him form contributing to a conventional IRA?
Age: 65 or over
3 weeks, 5 days ago
by
 - Scottsdale, AZ, USA
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A: 
Thanks for your question about your son’s pension plan. A Traditional or Roth IRA is a great complement to any defined benefit plan like a pension. Whether your son chooses a Traditional or Roth IRA will depend on his income and coverage status in the workplace plan but there is no prohibition against contributing to an IRA while covered by a pension.

He can use our IRA Contribution Calculator at https://scs.fidelity.com/products/m... to determine his eligibility for a Roth and how much of his Traditional IRA contribution might be tax-deductible. I hope this information is helpful.

Ken
3 days ago
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Open and Contribute to IRAs
 
1 answer

Considering converting IRA to Roth IRA

Q: 
How do I determine the amount of funds I should convert from my IRA to my Roth? My wife is working, but I am not. I have about $400,000+ in my IRA. I contribute yearly to my Roth and my wife's Roth.
3 weeks, 5 days ago
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 - New York, NY, USA
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A: 
Thanks for your question. There are generally three things to consider when deciding whether to convert to a Roth IRA and how much—taxes, timing, and cost. You’ll need to consider your current tax bracket and your projected tax bracket in retirement, how much time you have before you are going to start taking distributions, and the tax cost of the conversion. This last factor, the tax cost, is often an important consideration. If the contributions to your Traditional IRA were made pre-tax, taxes will need to be paid on the amount converted to the Roth, which could be a substantial amount. With any decision like this it’s usually a good idea to consult with a tax advisor to make sure all of the angles are covered.

Here’s a Fidelity Viewpoints® article that I hope you will find helpful: https://www.fidelity.com/viewpoints....

Ken
3 weeks, 2 days ago
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