Fidelity Roth IRA

Are you looking for a decent and secure post-career life? Fidelity Roth IRA offers you tension free living safeguarded by the money you put ahead of time into your account which keeps on growing tax-free until it’s the time to withdraw.

Fidelity Investments. co is one of the largest and most diversified financial service companies which provides enormous services in Roth IRA. It ensures easy sign up of the accounts and later takes care of its customers for their lifetime.

Fidelity Roth IRA allows its account holders to grow their money tax-free which they can invest ahead of time which is going to pay them off eventually. For the person of every age, Fidelity Roth IRA is open and offers its great services, right according to the needs of its people.

What is a Roth IRA?

A Roth IRA is an individual retirement account that allows people to contribute their money for their retirement and withdraw it with no tax if certain conditions are met. It was established in 1967 with the name of former Senator William Roth.

The Roth IRA works in a similar manner like that of other retirement plan accounts with the major distinction that here the money grows tax free and it is less restrictive. There are no required minimum distributions RMDs for the account holders to take for their whole life. Required minimum distributions is the amount of money that must be withdrawn from an employer sponsored retirement plan. People having traditional accounts or with 401(k) take out the RMDs.

Roth IRA requires people to contribute in cash that can be through checks and money orders because it does not take in the form of securities and property. It provides variety of investment options once the money is contributed including:

  • Mutual funds
  • Exchange traded funds (ETFs)
  • Stocks
  • Bonds
  • Certificates of Deposit (CDs)
  • Money Market funds

The Internal Revenue Service (IRS) limits the maximum amount one can contribute into his account just to adjust the amount periodically. The amount can be funded through multiple channels such as:

  • Transfers
  • Regular Contributions
  • Spousal IRA contributions
  • Conversions
  • Rollover Contributions

Fidelity Investments

Fidelity Investment is one of the most diversified financial services in the world. It is based in the United States. It was established in 1946 and is one of the largest asset manager companies in the world with $4.9 trillion assets under their watch. The combined total customer asset value is $8.3 trillion.

It operated as a brokerage firm while hosting myriad financial services such as:

  • Fund distribution and investment advice
  • Index funds
  • Retirement services
  • Cryptocurrency
  • Wealth management
  • Securities execution and clearance
  • Life insurance
  • Asset custody

How to open a Fidelity Roth IRA?

Roth IRA is one of the secure options of saving for your retirement. With Roth IRA you get your money to grow tax free with no required minimum distributions. That means if you don’t need the money you can let it grow until you want to withdraw.

It is very beneficial for young people to have a Roth IRA as they have typically lower income tax rates. But for opening a Roth IRA, there is no age limit so even a child can open it with an easier process. As every other Roth IRA, the process for opening a Roth IRA in Fidelity follows the similar following pattern:

1.   Ensure your eligibility

People who have earned modified adjusted gross income for a year are eligible to contribute to Roth IRA. with following Roth IRA income limits and conditions, you can contribute into the account.

 

If your filing status is… And your 2021 modified AGI is… And your 2022 modified AGI is… You can contribute
Married filing jointly <$198,000 <$204,000 Up to the limit
  ≥$198,000 but < $208,000 ≥$204,000 but < $214,000 A reduced amount
  ≥ $208,000 ≥ $214,000 Zero
Married filing separately but you live with your spouse <$10,000 <$10,000 A reduced amount
  ≥$10,000 ≥$10,000 Zero
Single, head of household, or married filing separately and you did not live with your spouse <$125,000 <$129,000 Up to the limit
  ≥ $125,000 but < $140,000 ≥$129,000 but < $144,000 A reduced amount
  ≥$140,000 ≥$144,000 Zero

2.   Decide where you want to open a Roth IRA

Almost all investment companies or banks offer their process of opening Roth IRA. If you already have a traditional IRA in a company, they can open a Roth IRA too if asked. Before deciding on where to open an account, check the following specifications:

  • Fee to open or maintain the account
  • Company’s provision of customer service
  • Types of investments a company is offering
  • How much does it cost to trade?

Based on these allowance, you can decide on an investment company to open a Roth IRA that meets your demands.

3.   Fill out the paperwork

You can do the entire process of paperwork online from the web service of the company or bank. In some cases the other option might be manual where you need to go to the bank or get help from their customer service. In any case, you mainly need the following information ready to fill the required documentation.

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  • You driving license or another form of photo identification
  • Your bank’s routing number or your checkings and savings account number so that you can transfer your money directly to the new account.
  • Your Social security number (SSN)
  • The name and address of your employer
  • The name, SSN and address of your beneficiary

It is mandatory to mention your beneficiary because in any changing circumstances such as marriage, divorce or death, the bank can pass the account to the beneficiary without going through probate.

You also have to fill out a 5305-R form from the Internal Revenue Service (IRS), as part of the paperwork.

4.   Choose investments

After filing the paperwork you are good to go for opening the account but before that, choose how you want to invest your money that goes into Roth. you can consider the following options:

  • Design and customize your own portfolio by selecting many options available from the company.
  • Buy a target date fund (mutual funds or exchange-traded funds that are structured to grow assets in optimized way for a specific time frame) or life cycle fund (asset location funds in which the share of each asset class is automatically adjusted to lower risk as retirement date approaches)
  • Consult a financial advisor. He can be from the bank or a person of your choice outside of the bank.

5.   Set up a contribution schedule

If the company allows, you can make monthly contributions; directly transferring money from your bank account. Or you can go for annual contributions as long as you meet the minimum income requirements.

How is the Roth IRA different from traditional IRA?

Both IRAs surve a similar purpose: providing long-term savings and investments to build a nest egg for one’s post-career life. The major difference however is how each charges you the taxes for your yearly contributions.

With Traditional IRA, contributions are tax-deductible. As a result, withdrawals are taxed at your income tax rate when you make any. While in Roth IRAs, you don’t get a tax deduction when you make your yearly contribution which also doesn’t your AGI that year in traditional IRA case, it does. Because you paid the tax bill upfront, your withdrawals are tax-free at the time of retirement in Roth IRA.

What can you contribute to a Roth IRA?

The Internal Revenue Service defines that only cash amount is accepted to be paid as a contribution to Roth IRA, that too based on your earned income. Your securities or property is not accepted as a contribution because they don’t provide any earning.

The working employee can contribute from wages, commissions, salary, bonuses and other amounts that are basically paid to the individual for whatever work they perform. The self-employed or an individual who is a member of pass-through business the contribution is allowed to be made by the individual’s net earnings unless any deductions are made on the individual’s behalf or reduced 50% from individual’s self-employment taxes.

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However, money coming from following sources is not allowed to be contributed:

  • Interest income
  • Rental income coming from property maintenance
  • Stock dividends or capital gains
  • Pension or annuity income
  • Passive income that is earned from a partnership in which you do not perform any work

Withdrawals from Fidelity Roth IRA

If you need to withdraw money from your Fidelity Roth IRA, there are certain rules and regulations from the company that an individual has to follow in order to make smart decisions.

If you are younger than 59.5

Because of the age, withdrawal at this time is considered an early distribution for which you have to pay extra penalties and taxes in certain cases.

Under the rules of the IRS, in case of withdrawal at the age younger than 59.5, you’ll have to pay state and federal taxes. In some exceptions such as first time home purchase, birth and adoption expenses (up to $5000), death or disability, qualified education expenses, health insurance (if you are unemployed) and some medical expenses, you have to pay a 10% penalty unless you are using the money at one of the mentioned conditions.

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If you are 59.5 and above

As 59.5 is the required age for you to start withdrawing for which you don’t have to pay any penalties or taxes. Other than that it is based on what type of IRA you are having, you pay or not pay the taxes accordingly. In normal circumstances, you are not required to withdraw from any of your IRA before the age of 59.5

Backdoor Roth IRA

Backdoor Roth IRA is an alternative way to transfer an already traditional IRA into a Roth IRA whose great perk is that money grows over there tax-free.

For converting your traditional IRA into Roth IRA, you first need to have an amount in your traditional IRA account which will be converted to the Roth IRA by setting up an account with the help of your IRA administrator. After having some needed paperwork, you would pay deduction tax that you did not pay while having the traditional IRA.

This way you can own a Roth IRA simply converting your amount already present into the traditional IRA.

Pros and Cons of IRA

Pros

Tax-free retirement income

The major difference between a traditional and Roth IRA is how both are treated with the amount of taxes attached to them. With traditional IRA, an individual may pay deductible contributions but at the time of withdrawal, he will owe the company the income taxes.

With a fidelity Roth IRA, an individual has to wait for the tax-savings pay-off but it is worth it in the end. It is more beneficial for the younger employees who bear lower taxes, they can pay upfront income taxes and will enjoy tax-free distribution at the time of retirement. There can be the possibility that their tax rates will be higher in the future than now.

Because the contributions are non deductible, you owe nothing to the company at the time of withdrawals.

Easy and early access to money

Ideally the money you put into your Roth IRA, it is supposed to be untapped unless the time of your retirement approaches. But in emergency situations, you can access the money by applying for the emergence withdrawals.

In traditional IRAs, if you take the money for emergency use before the age of 59.5, you have to pay income taxes and a 10% penalty. But with a fidelity Roth IRA, you can dodge both penalty and income tax as long as the amount of money you require comes from the contributions and not from our earnings.

Less ageist withdrawal rules

With a traditional IRA, the savers are required to withdraw the money from the age of 72 because money in traditional IRA is subject to Required minimum distributions. On the other hand, with fidelity Roth IRA is not subject to RMDs which means the account holders are not needed to withdraw the minimum required money. So their money can stay their as long as they live which benefits them as:

  • The investment can grow tax-free in their account
  • Investors can avoid selling assets at a time when there is a down market year. In a traditional IRA, one has to withdraw the money regardless of the market conditions.

Better terms for the heirs

In traditional IRA, the requirement to pass the income taxes down to the heirs, fidelity Roth IRA benefits the heirs by letting the withdrawals tax-free.

Cons of Fidelity Roth IRA

You have to pay tax upfront

As the withdrawals from the fidelity Roth IRA are tax free, that is because you pay non-deductible contributions. Tax-free withdrawals are there for your post-career life for which you have to pay it upfront.

Maximum contribution is low

With the rulings of the IRS, the maximum contribution for the Roth IRA is $6000 and $7000 if you are older than 50 years. That means you won’t have enough money saved for retirement. Compared to traditional IRA such as 401 (k), the maximum annual contribution limit is $19,500 in 2021 and $20,500 in 2022. While for the people who are older than 50 years have the maximum contribution limit at $26,000 in 2021 and $27,000 in 2022.

Income limits

It is only confined for the people of good income. Those who earn from passive means or from property maintenance are not encouraged or even allowed to have Roth IRAs because they accept contributions only from those who can prove their income from the work they themselves perform.

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Conclusion

In a world of uncertainties, planning for your post-career life seems a smart choice to make. Roth Individual Retirement Account (IRA) is a retirement saving account where you can contribute an after-tax amount of your paycheck on a yearly basis. The money is safe and secure under a close watch which you can withdraw in emergency situations too.

Against the traditional IRA, Roth IRA provides you multiple offers where you can grow your money tax-free and get it to invest in places of your choice. Indeed it is a much needed service which ensures decent life for individuals after their long careers.

John Otero

John Otero

John Otero is an industry practitioner with more than 15 years of experience in the insurance industry. He has held various senior management roles both in the insurance companies and insurance brokers during this span of time. He began his insurance career in 2004 as an office assistant at an agency in her hometown of Duluth, MN. He got licensed as a producer while working at that agency and progressed to serve as an office manager. Working in the agency is how he fell in love with the industry. He saw firsthand the good that insurance consumers experienced by having the proper protection. John has diverse experience in corporate & consumer insurance services, across a range of vocations. His specialties include Major Corporate risk management and insurance programs, and Financial Lines He has been instrumental in making his firm as one of the leading organizations in the country in generating sustainable rapid growth of the company while maintaining service excellence to clients.

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