Leaving a job or getting laid off usually prompts a period fraught with tough choices and big changes. In the midst of everything else, managing your old 401k might be the last task you want to deal with.
The good news is, if your 401k is with Fidelity, the process for completing your rollover is actually simple and quite painless. You can convert your employer-sponsored 401k to an IRA or even move it into the 401k account of your new employer rather seamlessly if you know the correct steps to take.
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Here’s a quick look at how to roll over your Fidelity 401k.
Step 1: Decide What’s Best for You
The first step is deciding if you want to roll over your 401k and, if so, what sort of account you want to move your nest egg to.
You have five basic options for what to do with your old Fidelity 401k account: leave it with Fidelity, roll it over into the 401k account of a new employer, roll it over into a traditional IRA, roll it over into a Roth IRA or cash it out.
Leaving your account in place is one of the simplest options, but keeping track of your finances across multiple retirement accounts might prove to be difficult. What’s more, you’ll no longer be able to make contributions or, in most cases, take out a 401k loan.
Moving it to a new 401k will consolidate your accounts, but the new company might charge higher fees or not have the same investment options. And, if your new employer doesn’t offer a 401k, this won’t be possible.
Rolling your 401k over into an IRA doesn’t require your new employer to have a 401k plan, but an IRA won’t necessarily offer the same protections under federal law as a 401k. Some states, however, offer certain creditor protection for IRAs.
Finally, you can opt to cash out your account. Unless you have a critical need for cash, you should avoid doing so since this could result in consequences that vary depending on your age and tax situation.
Step 2: Set Up Your New Account
According to the IRS, most pre-retirement payments that you receive from a retirement plan can be rolled over to another retirement plan within 60 days. If you don’t roll over your payment, it will be taxable, so it’s best to have the new account set up and in place well before you close out your old one.
Be sure to take advantage of the resources offered by your new account manager. They should be happy to have your business and should offer up plenty of assistance — and maybe even some perks — to entice you to use their services.
Of course, if you’ve been happy with Fidelity, you can consider using them for your new account as well by opening a Fidelity rollover IRA.
Step 3: Contact Fidelity and Ask for a Direct Rollover
Reach out to a Fidelity representative about beginning your rollover. The company has a set procedure to follow for rollovers.
Be very sure, though, to emphasize that you want a “direct rollover,” meaning you’re moving the funds directly from one retirement account to another. No taxes will be withheld from the transfer amount, according to the IRS.
Step 4: Report the Rollover on Your Taxes
In a direct rollover, you shouldn’t owe any additional taxes, but you need to report the transaction on your taxes. If you roll over a 401k to an IRA, you should expect a 1099-R form from your 401k plan provider. This is the form you’ll use to report a direct rollover to the IRS. Fidelity will also send you a 5498 form if your rollover was a direct one. Simply add that information to your tax return at the end of the year.
More on 401k Investments:
- 401k Vesting: Not All of the Money in Your 401k Is Really Yours
- Financial Experts Share 12 Secret Moves to Double Your 401k
- 15 Big 401k Questions to Ask Your Employer