Rolling over a Fidelity 401(k): Step-by-step guide

If you have a Fidelity 401(k) from a previous job, there are a few options for you to consider when doing a rollover. The process for Fidelity — sometimes referred to as Fidelity Investments — requires a form to sign, a phone call to authorize, and a check to be mailed for you to deposit into the new account.

We’ve laid out a five-step guide to help you roll over the retirement savings in your old Fidelity 401(k):

1. Confirm a few key details about your 401(k) plan
2. Decide where to move your money
3. Initiate your rollover with Fidelity
4. Get a check in the mail and deposit it into the new account
5. Make sure your funds are being invested properly

What is a 401(k) rollover?

A 401(k) rollover is the process of transferring money from an old employer-sponsored retirement plan to a new account. Most people who roll over end up transferring their 401(k) retirement assets into a new or existing IRA (individual retirement account).

Note: A 401(k) rollover is not a withdrawal. The 401(k) rollover process simply means you’re moving the account to another institution; in the majority of cases, you’ll never receive the money directly. A properly completed direct rollover should involve no early withdrawal penalties or taxes — and there’s no age requirement, either.

STEP 1

Confirm a few key details about your Fidelity 401(k)

First, get together any information you have on your Fidelity 401(k). It’s okay if you don’t have a ton, but an old account statement or an off-boarding e-mail from your former HR team can help. Retirement plan paperwork can be confusing, so just focus on identifying the following items:

1. Is your account eligible for a rollover? In most cases, it takes about two weeks from the time you leave a company for your 401(k) to be eligible for a rollover. You can confirm that your retirement fund is able to be transferred by contacting Fidelity or your former employer’s HR department.
2. Do you have a Traditional or Roth 401(k)? This will determine which type of IRA you’ll need to open (more on this in step 2). If you’re like most people, you have a traditional 401(k) — only 12% of employer-sponsored retirement plans even offer a Roth 401(k) in their retirement benefits, but it’s worth checking. What’s the difference between the two? Just the way your contributions were taxed. With a Traditional 401(k) your contributions came out of your paycheck with no taxes paid. With a Roth 401(k), your contributions came out after taxes were paid.
3. Is your mailing address up to date? Make sure your mailing address is updated on your Fidelity account. They’ll use this address to send you a paper check as part of the rollover process. If you need to update your address, make sure to do so during your phone call authorization (more in step 4).

STEP 2

Decide where to move your money

In order to move the money out of your 401(k) account, you’ll first need to have an account ready for that money to move into.

You have two main options:

1. An IRA — an IRA is an individual retirement account. As the name suggests, it’s an account you open up on your own — individually — so it’s not connected to an employer. If your former employer’s 401(k) is already at Fidelity, you might consider a Fidelity IRA to move the money into. Depending on your circumstances, your future contributions to an IRA may or may not be tax-deductible.
2. A new 401(k) — you might have an active 401(k) account with a new employer as part of your retirement benefits package. If so, you may be able to transfer your old 401(k) plan assets into that new retirement account. This isn’t always possible though, and you’ll need to check with your current 401(k) provider and HR person. As far as tax implications, fortunately, 401(k) contributions are almost always tax-deductible.

We’ve written a full guide on the five key differences between 401(k)s and IRAs if you’re trying to understand all of the differences.

Ultimately, most people who roll over an old 401(k) do so into an IRA for a few key reasons:

• Not tied to an employer — IRAs are generally easier to keep track of since you open them yourself at an institution of your choice — like Fidelity, Vanguard, or Betterment. The only eligibility requirement is to have earned income — or be married to someone who does.
• A wider range of investment options — Usually an employer-sponsored retirement plan has a limited set of investment options: just mutual funds. Some 401(k)s also allow you to hold company stock. With an IRA, on the other hand, you can invest your money in a wide range of stocks, ETFs, and sometimes even private assets like angel investments and cryptocurrency.
• Quicker process — according to the GAO, rollovers into 401(k)s tend to be more time-consuming and administratively challenging than rollovers into IRAs.

Think of your IRA as helping you do two key tasks:

1. Receiving the money you’ve saved in your 401(k) at previous jobs so you can consolidate your savings and keep track of them.
2. Growing that money by allocating it to investments that will increase over time and provide retirement income when the time comes.

Regardless of the option you choose, if you have a tax-deferred 401(k), or a tax-deferred IRA, you’ll still be subject to Required Minimum Distributions (RMDs) once you hit age 73. (If you have more questions, a financial advisor can help.)

Also, recall that an IRA rollover is not the same as an IRA contribution — which is good news. If you choose to move money to an IRA via rollover, this will not count against your annual IRA contribution limits.

Even better news? Opening an IRA can almost always be done online and should take you less than 10 minutes if you don’t already have one.

How do I choose an IRA provider?

Many financial institutions offer a variety of retirement accounts (including custodial IRAs). From brokerage firms and banks to newer fintech companies, you’ll have plenty of rollover options to choose from. The main question you should answer up front is this one:

Do you want to make your own investment decisions, or would you rather have the investing decisions made for you so you can just set it and forget it?

If you want to make your own asset allocation decisions, then you’ll likely want your new retirement account to be a self-directed IRA. That allows you to make your own trading decisions and invest in whichever financial securities you’d like.

The key features to compare when choosing among self-directed IRAs include:

• Retirement investment options. The exact retirement investment options among IRA providers vary. Most of them allow you to invest in stocks, ETFs (exchange-traded funds), and options. Other specialized IRA providers will let you invest in private assets and cryptocurrency. It all depends what ideal retirement planning looks ilke to you.
• Access to research and data. Some brokers provide access to premium research and data. If you’re a more hands-on investor, this might be important to you.
• Ease of use. While user interfaces are getting better across the board, newer fintech providers tend to be more popular with those who really value an intuitive app experience.

If you want asset allocation decisions made for you, then you’ll be best served by an automated IRA, also known as a robo-advisor account. If you go this route, you’ll answer a series of questions (known as a “risk-tolerance questionnaire”), and your answers will be used to create a diversified portfolio that suits your financial situation and retirement income needs. That portfolio is then rebalanced automatically over time without you having to do any work. It’s a great tool for those who don’t want to spend much time managing their investments — or hire a financial advisor to help them with retirement planning.

The key features to compare when choosing an automated account include:

• Annual fee — most automated accounts charge an annual fee that’s expressed in percentage terms — e.g. 0.25%. This is the percentage of your assets that they’ll take annually for managing a portfolio for you. For example, if your automated IRA charges 0.25% and you have a $10,000 account, you’ll pay $25 per year to the IRA provider. This fee is often referred to as an advisory fee or management fee. Most fees range from 0.25% – 0.50%, so be wary of paying more than that. Some providers now even offer zero-fee accounts. Nothing is truly free though, and these IRAs will often fill your portfolio with their own proprietary exchange-traded funds (ETFs), which have their own fees.
• Ease of use — the original providers of automated accounts were tech-first companies like Betterment and Wealthfront who sought to provide a simpler, more intuitive user experience. While more established companies now offer automated accounts of their own, the newer upstarts maintain a usability advantage.
• Level of customer support — on the other hand, the longer-standing, bigger companies have more robust customer support systems built over many years, including well-staffed call centers and often even branch networks. If that’s important to you, then a larger institution might be your bet.

What type of IRA should I open?

During the process of opening your new account, you may get asked which type of IRA you’d like to open. You might see the following options: Rollover IRA, Traditional IRA, or Roth IRA. Here’s how to pick the right one:

• If you had a Traditional 401(k) — pick a Rollover IRA — or, if that’s not available, Traditional IRA. If that’s not available either, simply choose the option that reads IRA. The only exception would be if you’re considering a Roth conversion, but this is an advanced tax planning strategy that most people don’t need to worry about (and it can have substantial tax implications in the short term).
• If you had a Roth 401(k) — pick a Roth IRA. You’ll need to match the Roth 401(k) to a Roth IRA for tax reasons.
• If your 401(k) has mixed assets — you’ll need to open two IRAs, one Roth and one traditional, for their respective retirement assets.

STEP 3

Initiate your rollover with Fidelity

You’re making great progress. You’ve confirmed key details about your 401(k) plan and you have an IRA to transfer your money into. The next step is to initiate your rollover with Fidelity. Fidelity has two methods for requesting a rollover to another institution:

1. by filling out Fidelity’s rollover authorization form on fidelity.com.
2. by calling Fidelity

If you are rolling over your Fidelity 401(k) to an IRA at Fidelity, you can request a rollover online, through your NetBenefits account. For rollovers to another institution, you’ll have to call or use the form.

Authorize via Form

Rolling over via a form offers convenience, but sometimes forms can get rejected, which will prolong the process. If you’ve confirmed that your mailing address and contact information on your account is correct and that your plan is eligible for a rollover, initiating your rollover via the form is worth considering. If you aren’t sure, you may want to initiate your rollover over the phone to avoid any issues during processing.

The rollover distribution form can be found on Fidelity’s website here. You’ll need to fill out, sign, and send it back to Fidelity by mail or fax. The mailing address and fax number can be found at the end of the form, or elsewhere on fidelity.com.

Authorize via Phone

If you prefer to speak to a Fidelity representative to make sure everything is good to go, you can also initiate your rollover over the phone. Contacting Fidelity directly over the phone allows you to correct any issues on your account, update your mailing address, and initiate the rollover all in one go. Fidelity’s phone number should be visible on an old account statement, website, or on the distribution form.

In order for your call to go smoothly, follow these tips:

1. Set aside 30 minutes and a quiet space in which to make the call. Most of the time the call itself will take around 10 minutes, but there might be some hold time before you’re connected to an operator.
2. If you have an old 401(k) statement, keep it handy. No worries if not — you’ll be asked for your social security number and some other personal details to verify your identity.
3. Before you do the call, log into your new IRA account. Note down the following information:
4. • Your IRA account number
   • Any other check-related instructions. These details are usually found on the IRA provider’s website in a “Funding” or “Rollover instructions” section and include things like the name of the institution to whom the check is made out (usually the full legal name of the IRA provider you’ve chosen).

Then, make the call. Just one more reminder: Don’t forget to confirm your mailing address during the call. Fidelity will mail your rollover check to the address they have on file. If you need to update your address with them, just let the Fidelity rep know during the call and provide your current address.

What do I request on the call?

After your identity is verified, you’ll be able to tell the customer service representative that you want to do a direct rollover. A direct rollover process means your retirement funds are transferred directly to your new IRA provider. You may still receive a check, but it’ll be made out in the name of that IRA provider but “for the benefit of ” (FBO) you. This is generally the simplest approach.

An indirect rollover is where funds are first transferred to you, or a check is made out in your name. You deposit the funds in one of your own accounts, but then you have 60 days to send that money on to your IRA account if you want the rollover to be tax-free. This can create a little extra work for you (and costly if you miss the deadline), which is why most people opt for a direct rollover.

STEP 4

Look out for your check in the mail and deposit it into your new account

You may be able to have the funds transferred directly to your new provider without ever receiving the funds as a check. But if you are getting a check cut, be sure to keep an eye out for it in your mailbox. Then, you’ll have three options.

• Mobile deposit — the easiest option is to check your provider’s mobile app to see if they have a mobile deposit option. Not all providers offer this method, but it’s worth checking. Mobile deposits are the quickest option and typically take 3-5 business days to show up in your account.
• Deposit in person at a local branch — if your provider has a physical branch nearby, you can also deposit the check in person. Checks deposited in person typically take 3-5 business days to show up in your account.
• Send the check by mail — you can also send the check by mail to the provider using the address you previously looked up. Funds that are mailed can take up to 15 business days to show up in your account.

What if my check gets misplaced or lost in the mail?

This unfortunately does happen every once in a while, but don’t worry — your money hasn’t disappeared. If your check doesn’t arrive, you’ll have to call your 401(k) provider again and ask them to issue a new one. They’ll place a stop on the first one, and nobody will be able to cash the first (lost) check since it’s generally made out to you or your IRA provider and will always stipulate that it’s “for the benefit of” or FBO, your name.

STEP 5

Make sure your IRA is being invested appropriately

Remember there are two goals of rolling over an old 401(k) into an IRA — the first is to consolidate your 401(k) retirement savings, and the second is to grow those assets by allocating them into investments that will increase in value over time (so you’ll have retirement income when you need it).

Your very last step in executing a rollover is to make sure that the second goal is being met and that the funds in your IRA are being appropriately invested. If you chose an automated IRA then this should happen automatically. That’s because as soon as your funds arrive they’ll be allocated into a portfolio that was created for you during the sign-up process for your new IRA account. You should still log in and check to make sure that’s the case, but usually, there’s nothing more for you to do.

If you choose a self-directed account then you’ll have to invest the money yourself. Often the simplest option is to purchase a target-date retirement fund — this is an investment vehicle that puts your money into a combination of higher-risk, higher-return stocks and lower-risk, lower-return bonds. The exact mix changes as you age so that you have more stocks when you’re younger and less as you get older: because stocks generate higher returns but are more volatile we should own more of them early on when we can withstand their fluctuations in order to achieve their higher long-term returns.

Otherwise, you can assemble a portfolio on your own by making trades. If you’re unsure, don’t be afraid to consult a qualified financial or tax advisor. Sound tax advice can go a long way in minimizing your current and future obligations to the IRS and state taxing authorities. For comprehensive advice, consider working with a Registered Investment Adviser, or RIA.

Conclusion

401(k) rollovers are a great way for you to tax-efficiently transfer the savings in old 401(k) accounts you have. If you roll over into an IRA, you may also be able to invest in a wider range of assets.

The process can seem a little daunting, but there are just five key steps to follow. Most people who complete a rollover are glad they did. The assets in accounts like your IRA will probably end up being your biggest source of retirement income in the long run. Investing a little time to get those assets set up and working for you in the right way can really pay off.

Extras

Roth conversions

For those who want extra credit: you may have heard of the term “Roth conversion”. That’s when somebody rolls over a traditional 401(k) into a Roth IRA. Why would somebody do this? It all comes down to taxes. Recall that with a traditional 401(k) your contributions are made pre-tax. When you roll over a traditional 401(k) into a traditional IRA, your assets continue to grow with no taxes being paid — until you start withdrawing your money, usually at the time of retirement. At that point, you’ll pay income taxes at whatever your rate will be then. If you believe your income tax at retirement will be greater than your income tax today, then it might make sense to consider a Roth conversion. This allows you to pay income taxes on your rollover amount today. Then, the money in your Roth IRA grows and turns into tax-free retirement income.