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. Below are answers to hundreds of retirement questions from Fidelity customers, ranging from investment options and minimum required distributions, to strategies for Social Security benefits. Use the box below to search for the answers to your retirement questions.
Can anyone convert to a Roth IRA?
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For more than 60 years, through all kinds of market conditions, Fidelity has been helping people like you pursue their financial goals. Ken Hevert and Sarah Walsh, who lead our Ask Fidelity team, have spent decades helping investors understand retirement strategies. They can help put Fidelity’s expertise to work for you.
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Thanks for your question regarding the rules on withdrawals from your IRA. You’re correct that it’s possible to withdraw from your IRA and replace the money without being charged taxes or penalties on the original withdrawal. It’s called a 60-day rollover.
A distribution from an IRA that’s made payable to you can be redeposited into the same or another IRA within 60 days without penalty. Any part of the distribution that you keep past 60 days will be taxed at your usual rate, and for people under 59½, a 10% penalty would apply. Further details about this option are included in the link here from the IRS website:
Please keep in mind that the frequency with which you can leverage this option was changed last year by the IRS. As of January 1, 2015, you can make only one rollover from an IRA to another, or the same IRA, in any 12-month period, regardless of the number of IRAs you own.
I hope this information is helpful. Thanks again for your question.
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.
Also linked on the above page is our Roth IRA Conversion Checklist which can help lead you through the process of converting if you decide its right for you.
I hope this information is helpful to you.
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.
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.
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