In the U.S. there’s more than $7.7 billion in unclaimed retirement savings floating out there (*in 2015, according to the National Association of Unclaimed Property Administrators). That’s why rolling over your old 401k to a Fidelity Rollover IRA is a very good idea.
Having old 401ks lying around everywhere is like leaving your stuff at your exes houses after you’ve broken up with them. Like why would you do that… why?
9 times out of 10, there’s really no reason NOT to rollover your 401k after you’ve left a job. Many 401k plans charge high admin fees, they offer very limited investment options, and if for whatever reason your old employer goes bankrupt, it would be a nightmare to track down your money.
That’s why I’m a big fan of rolling over your 401k to a Fidelity Rollover IRAs. In this article, I’m going to talk about:
- How to do a Fidelity 401K Rollover, step-by-step
- And for those of you who have a Roth 401k, I’ll also explain how to rollover that as well
- And finally, I’m going to talk about how to invest your Fidelity Rollover IRA once the 401k money has transferred over
We have a lot to cover in this blog, so let’s get right into it.
How to do a Fidelity Rollover IRA
For those of you that haven’t already done the rollover, I’m going to walk you through how to do it, step by step.
But for those of you who’ve already done this step, you can skip ahead, where I talk about how (and why) to convert it to a Roth IRA, or where I talk about 3 ways to invest your Fidelity Rollover IRA.
- The first step is to find out where all your money is. If you think you may have 401ks floating around somewhere but you’re not sure, then I want you to contact the HR department at your old job and find out what’s going on. Or if you know who the 401k provider was, you can just call them. For example, my old 401k was serviced by Vanguard, so I knew exactly where to find it.
- The next step is to open a Fidelity Rollover IRA. This is easy to do – you just go to the Fidelity website, click “Open An Account”, and select Rollover IRA. This is if you’re rolling over a regular 401k. Now, if you’re rolling over a Roth 401k, you would need to open a Roth IRA, not Rollover IRA. If you’re rolling over regular 401k money AND Roth 401k money, then you would need to open BOTH. Basically, what we’re doing here is we’re opening the destination accounts – the new home for your 401k money. And the destination account has to match the type of 401k. So a traditional 401k gets rolled over to a Traditional IRA, and a Roth 401k gets rolled over to a Roth IRA. Got it?
- Once you finish the IRA account opening process, Fidelity will take you to a confirmation page with the account number of your new IRA. Write down this account number, because you’re going to need it for the next step.
- The next step is to contact your 401k provider and tell them to send your 401k money to your new Fidelity IRA. You need to tell your 401k provider 3 things: Who to make the check payable to, the account number of your new Fidelity IRA, and What mailing address to send the check to. I know it’s super antiquated, but the only way Fidelity accepts rollover money is via a paper check. Just Google “fidelity rollover 401k deposit”, go to the top search result, and you’ll find everything your 401k provider needs to know. Make sure they make the check payable to Fidelity Management Trust Company, FBO [Your Name] and tell them to include your IRA account number on the memo line. And just to be clear, if you have both 401k and Roth 401k money to roll over, you need to do this whole process twice. Two different IRAs, two different checks.
- The final step is to make sure you report the rollover correctly when you file your taxes. Your 401k provider will send you a Form 1099 showing that you took money out of the 401k. And Fidelity will send you Form 5498 showing that you contributed money into an IRA. The end result is that they cancel each other so that you don’t owe any taxes. Make sure you file both of these forms the year that you do the rollover so that you don’t run into any problems with the IRS.
If you get stuck anywhere during this process, just pick up the phone and call Fidelity. Believe me… they are very happy to have you transfer your 401k money to them, so they’ll spend as much time on the phone with you as you need.
Also, if you could use a helpful guide on how all these different retirement accounts work, download my “Ultimate Guide to IRAs, 401k, and HSAs”. It’s a neat little cheat sheet that summarizes the pros and cons of each account, what you can and can’t do with each, and which ones to prioritize and why. It has literally everything you need to know about tax-advantaged accounts, so click this link to download it!
And finally, for some ideas on how to invest your Fidelity Rollover IRA
Once everything is rolled over and your Rollover IRA is good to go, it’s time to think about how you want to invest it.
Your IRA is not an investment – it’s just an account with money in it. Even if your 401k had investments in it, they liquidate everything when you roll it over. So until you pull the trigger on some new investments, your rollover IRA is just sitting in cash!
That’s why I want to suggest 3 ways to invest your Rollover IRA.
Idea #1: Target Date Funds
The first and easiest way to invest is by buying a Target Date Fund. Target Date Funds, also known as Lifecycle funds, are mutual funds that target a specific date for retirement. They are actually a fund of funds, in that they are funds that usually contain anywhere from 3-5 index funds inside it.
Every TDF has a year at the end of its name – like the Fidelity Freedom Index 2055, or the Vanguard Target Retirement 2055 Fund, or the Schwab Target 2055 Index Fund. And depending on your target retirement year, the fund will choose the appropriate mix of stocks and bonds for you. I actually made a video about Target Date Funds a few weeks ago, so definitely check that out if you want to go more in-depth.
Target Date Funds are nice because you don’t have to think too much. All you have to do is figure out what year you’re planning to retire, buy a Target Date Fund for that year, and you can sit back and relax. A lot of people retire millionaires by putting their money into Target Date Funds every month, so it’s a pretty decent option for busy people.
In fact, your 401k was probably invested in a Target Date Fund before you rolled it over to Fidelity because TDFs is the default investment option for most 401ks. TDFs are the bread and butter of the vast majority of American’s retirement savings for a reason.
Idea #2: Index Funds
The second option is to invest your Rollover IRA into index funds. This is much more DIY than buying a Target Date Fund because you are the one making all the decisions for your portfolio.
To invest in Target Date Funds, all you have to do is buy one fund. You find a low-cost fund with your target retirement year, you buy it, and you let the fund do all the rest of the work. It’s a one-and-done investment product.
But investing in index funds is a slightly more involved process. First, you have to decide what asset allocation you want – in other words, what percentage of stocks vs bonds vs cash you should have in your portfolio. Then, you have to research which index funds to buy. Not only this, but you’d also have to do some ongoing maintenance, such as rebalancing your portfolio when the market moves, and also adjusting your allocation as you approach retirement age. There are thousands of index funds out there, and there’s a lot of nuances to take into consideration, so it definitely takes a good amount of knowledge and effort to invest this way.
Luckily for you, I do have another article about how to set up an index fund investment portfolio, so you can check it out right here for detailed, step-by-step guidance.
I actually like investing this way, because even though it’s a little more work than Target Date Funds, I get to be more hands-on with my money and I like that. Besides, the hardest part about investing in index funds is setting it all up. Once it’s set up, it only takes about an hour of your time every couple of months, if that.
Idea #3: Individual Stocks
And the third way to invest your Fidelity Rollover IRA is to buy individual stocks. Buying individual stocks is very different from the first two options I talked about. When you invest in a TDF or index fund, you own a lot of different stocks. Most index funds contain hundreds, if not thousands of different stocks.
When you invest in an index fund, you’re betting that the stock market as a whole will go up.
But when you’re investing in individual stocks – or stocks of specific companies – then you’re betting that the company is going to do well.
That’s a very different game to play because then you have to know all the details about the company. You’d have to look at their financial statements, assess the management team, and study the industry and business model of that company. You are really zooming in on the prospects of one company, vs owning the entire stock market. It’s investing on a micro level, vs on a macro level.
There’s a lot that goes into finding good stocks, so it’s definitely not something you can learn how to do overnight. But if you’re interested in learning more about it, I’ll link to two really awesome books on the topic in the description box below.
To be perfectly honest, most people would be better off with the first two options – investing in Target Date Funds or in Index Funds. They’re easy enough that you can wrap your head around it and get your Rollover IRA invested TODAY. Buying index funds is just so much easier than picking stocks.
In closing
So that wraps up this blog – I hope that it’s helped you feel super confident about your Fidelity Rollover IRA. Thank you so much for spending this time with me. I appreciate you.
