The vast majority of the time you have your Fidelity 401(k), the money flows in just one direction: from your paycheck directly into your retirement account, with matching funds from your employer if you’re lucky. However, for all the focus on putting money into your 401(k), there will come a time when you will need to make a 401(k) withdrawal.
Ideally, the withdrawal will happen because you’ve reached retirement and you’re ready to stop working for your money and put it to work for you. However, you might also need to make a 401(k) early withdrawal or 401(k) hardship withdrawal for unforeseen circumstances.
Regardless of why, understanding the Fidelity 401(k) withdrawal rules is the only way to be sure you can avoid a 401(k) withdrawal penalty. Here’s a look at the basics of making a withdrawal from your Fidelity 401(k) so you can navigate the process confidently.
How To Make Fidelity 401(k) Withdrawal
Your 401(k) is your money, and making a withdrawal is as simple as contacting Fidelity to let them know you want it. The easiest way is to simply visit Fidelity’s website and request a check there. However, you can also reach out via phone if you prefer: Call 800-343-3548 with any questions about the process.
From there, you can download the appropriate withdrawal request form and then mail it to the address listed on the form. Fidelity will have your check for you in five to seven business days after receiving your request. You can also ask for your funds to be deposited directly into your bank account if you are willing to provide your bank account number on the form. There are no fees for requesting a check, but if you liquidate any holdings, there could be commissions or mutual fund fees associated with that.
If You Are 59 1/2 or Older
Once you are six months away from your 60th birthday, you can begin making Fidelity 401(k) withdrawals without having to worry about any additional tax penalties. Your 401(k) is now money that’s there for you to start preparing for the next stage of your life as you put the finishing touches on your career and prepare to start drawing Social Security benefits.
However, that doesn’t mean you don’t have to worry at all about taxes. Money withdrawn from your 401(k) is taxable income, so you should be careful to consider just how much you need to withdraw in any given tax year to ensure you’re not hitting a higher tax bracket and seeing more of your hard-earned money lost to taxes. If you have a Roth IRA or Roth 401(k), though, you can make tax-free withdrawals from those, so you can balance withdrawals to minimize the tax impact.
Your Fidelity 401(k) comes with the option to schedule regular withdrawals. To set this up, you can fill out the paperwork for your withdrawal once and then request a recurring payment. With structured, regular withdrawals, you can set up a budget that will limit your withdrawals to what you need, and you’ll be able to have checks or deposits showing up on a set schedule.
If You Are Under 59 1/2
Making a Fidelity 401(k) withdrawal prior to age 60 should always be a last resort. Not only will you pay tax penalties in many cases, but you’re also robbing yourself of the tremendous benefits of compound interest. This is why it’s so important to maintain an emergency fund to cover any short-term money needs without costing yourself extra by making a 401(k) early withdrawal.
However, life has a way of throwing you curveballs that might leave you with few to no other options. If you really are in a financial emergency, you can make a withdrawal in essentially the same way as a normal withdrawal. The form is filled out differently, but you can find it on Fidelity’s website and request a single lump sum or multiple scheduled payments.
If you jump the gun, though, and start making withdrawals prior to the age of 59 1/2, you’ve essentially broken your pact with the government to invest that money toward retirement. As such, you’ll pay tax penalties that can greatly reduce your nest egg before it gets to you. A 401(k) early withdrawal means a tax penalty of 10% on your withdrawal, which is on top of the normal income tax assessed on the money. If you’re already earning a normal salary, your early withdrawal could easily push you into a higher tax bracket and still come with that additional penalty, making it a very pricey withdrawal.
401(k) Hardship Withdrawal
There are, however, a number of different circumstances in which you can avoid that additional tax penalty. The IRS allows for a 401(k) hardship withdrawal in certain situations like a medical emergency or to pay for funeral expenses, and if you qualify, you’ll still pay normal income taxes on the money but no additional penalties.
There are a few other special exceptions that will allow you to make an early withdrawal without paying additional taxes within certain limitations, including paying for college tuition or buying your first home. Consult with a Fidelity representative prior to making a withdrawal to ensure you aren’t paying any unnecessary penalties.
If you plan to make a hardship withdrawal, you should expect to provide proof to Fidelity. Below is a checklist of the documents you might need:
- Fidelity withdrawal forms: You’ll need to provide some details about your account.
- Invoices of the costs causing your hardship: An invoice from a funeral home or contractor providing a necessary home repair could be sufficient evidence of your financial hardship.
Retirement Planning Implications
If you are facing a financial hardship that pushes you to take funds from your 401(k) prematurely, it’s important to realize this can have a negative impact on your long-term retirement plans. When you pull funds out of your account, you are cutting short their potential to grow over your career. Run the numbers to see how this hit to your investment accounts might impact your retirement nest egg. In many cases, pulling out the funds early is a significant setback in your retirement planning.
Alternative Funding Options
If you need funds in a pinch, there are other options besides making a 401(k) withdrawal. These options include:
- 401(k) loan: A 401(k) loan through Fidelity allows you to borrow some funds from your 401(k). In general, you’ll have to repay the loan within 5 years.
- Home equity loan: A home equity loan allows you to tap into the value of your home equity. Although you’ll have a second mortgage payment, you can leave your retirement funds untouched.
- Personal loan: An unsecured personal loan can help you get the funds you need without a 401(k) withdrawal or tapping into your home equity. This adds a payment to your monthly bills. But it could help you cover a big upfront cost.
Final Take
After putting in the hard work of saving up money for retirement, Fidelity makes it relatively simple to withdraw the funds during your golden years. Before making a withdrawal, make sure you understand how the move will impact your tax situation because the funds you withdraw are considered taxable income.
FAQ
Here are the answers to some frequently asked questions about making Fidelity 401(k) withdrawals.- How do I withdraw money from my Fidelity 401(k)?
- The process of withdrawing funds from your Fidelity 401(k) starts with filling out a withdrawal form provided by Fidelity. Be prepared to provide some personal information, account details, your reasons for withdrawal and the amount you want to withdraw. After submitting the form, Fidelity will process your request and release the funds.
- What qualifies for a hardship withdrawal from a Fidelity 401(k)?
- If you are under age 59.5, you cannot make a penalty-free withdrawal from your 401(k). The only exception is if you qualify for a hardship withdrawal. Some acceptable withdrawals include medical care expenses, necessary repair costs to your primary residence, funeral expenses, natural disaster-related expenses and funds necessary to avoid eviction or foreclosure. If making a hardship withdrawal, you can only pull out enough funds to cover the immediate financial need that you couldn't obtain from another source.
- How long do I have to wait to withdraw from my Fidelity 401(k)?
- You must wait until you are at least 59.5 years old to make a penalty-free withdrawal from your Fidelity 401(k).
- Does Fidelity require proof for hardship withdrawal?
- If you are seeking a hardship withdrawal, Fidelity may require proof of the financial hardship.
- What is the maximum withdrawal from a Fidelity 401(k)?
- The maximum amount of money you can withdraw from your Fidelity 401(k) in a single day is $100,000.
Sarah Sharkey contributed to the reporting for this article.
Editorial Note: This content is not provided by any entity covered in this article. Any opinions, analyses, reviews, ratings or recommendations expressed in this article are those of the author alone and have not been reviewed, approved or otherwise endorsed by any entity named in this article.
Information is accurate as of May 9, 2024.