Maximizing Your Roth Ira: A Fidelity Investor's Guide

If you're looking to invest your Roth IRA funds with Fidelity, there are a few steps you need to follow. Firstly, you'll need to choose and open the right account for you. This could be a traditional IRA, Roth IRA, or rollover IRA. Once your account is open, you can easily link your bank account and transfer money.

When choosing your investments, it's important to consider your risk tolerance, timeline, and investment style. Fidelity offers a range of investment options, including stocks, bonds, mutual funds, and exchange-traded funds (ETFs). You can also use their free online financial planning tools or work with a financial professional to guide you through the process.

Remember to regularly review your investments and ensure they align with your goals and risk tolerance.

How to choose and open a Roth IRA account

A Roth IRA is a type of tax-advantaged individual retirement account. You can contribute after-tax dollars towards your retirement, and your contributions and the earnings on those contributions can grow tax-free. You can withdraw your contributions without penalty at any time, and once you reach the age of 59 and a half, you can withdraw your earnings tax-free, provided the account has been open for at least five years.

• Check your eligibility: To be eligible for a Roth IRA, you must have earned income within specific IRS limits. For the 2024 tax year, the phase-out range for an individual is $146,000 to $161,000. For married couples filing jointly, it is $230,000 to $240,000.
• Choose a provider: You can open a Roth IRA with almost any investment company, bank, or brokerage firm. Look for a provider that offers low fees, low account minimums, goal-setting features, retirement calculators, and a range of investment options.
• Gather your paperwork: You will need a working email and phone number, a form of ID, your Social Security number or tax identification number, proof of employment, and the name and address of any beneficiaries you plan to add to the account.
• Choose your investments: You can choose to design your own investment portfolio or use a robo-advisor, which will manage your investments for you. If you design your own portfolio, consider your comfort level with risk and your time horizon until retirement. Many people invest more in bonds as they get older, as they are more stable than stocks.
• Set up a contribution schedule: You can set up monthly transfers from your bank account to your Roth IRA or make an annual contribution.

Once you have completed these steps, you can open a Roth IRA account with your chosen provider.

How to fund a Roth IRA account

A Roth IRA is an individual retirement account (IRA) funded with after-tax dollars. This means that you pay taxes on the money going into the account, but any investment growth in the account is tax-free, and withdrawals are also tax-free, provided certain requirements are met.

There are no fees or minimums to open a Fidelity Roth IRA account, and you can invest with as little as $1.

To fund a Roth IRA account, you need to first ensure that you are eligible. To be eligible, you need to earn income within specific IRS limits. You can answer four quick questions on the Fidelity website to see if you're eligible and how much you can contribute.

Once you've determined your eligibility, you can then fund the account. You can contribute up to the lesser of 100% of your earned income or $7,000 for 2024. If you are aged 50 or over, the contribution limit increases by another $1,000.

You can fund your Roth IRA account by transferring money from a bank account or by rolling over money from another retirement account.

Investing Your Roth IRA Funds

Once you have funded your Roth IRA account, the next step is to invest that money. Fidelity offers a range of investment options, including:

• Stock mutual funds
• Exchange-traded funds (ETFs)
• Individual stocks
• Target date funds
• Fidelity Go® managed account services
• Fidelity Wealth Services

When choosing investments, it's important to consider your risk tolerance, investment timeframe, and financial situation.

You can use the tools and resources available on the Fidelity website to research and choose investments that fit your financial goals.

How to select investments for a Roth IRA

When selecting investments for a Roth IRA, there are several factors to consider. Here are some guidelines to help you make informed decisions:

Understand Asset Allocation

Asset allocation refers to how your money is divided among different types of investments, such as stocks, bonds, and cash. A typical allocation might be 60% in stock funds and 40% in bond funds. It's important to understand that stocks generally offer higher returns but come with higher risk, while bonds provide more stable and secure sources of income.

Evaluate Your Risk Tolerance

Consider your time horizon and risk tolerance. If you're investing for the long term, you may be able to tolerate more risk. A common rule of thumb is to subtract your age from 100 or 110 to determine the percentage of your portfolio that should be allocated to stocks. For example, if you're 30 years old, you might allocate 70% to 80% to stocks. However, you can adjust this based on your personal comfort with risk.

Consider Mutual Funds and ETFs

Mutual funds and exchange-traded funds (ETFs) offer diversification and better long-term results. With these funds, you're investing in a basket of securities rather than individual stocks. S&P 500 index funds are a popular choice as they provide exposure to 500 large US companies. You can also consider total stock market index funds to gain access to a broader range of companies, including large-cap, mid-cap, and small-cap stocks.

Diversify Your Portfolio

Diversification is a key aspect of investing. In addition to US stocks and bonds, consider global stock index funds to gain exposure to international markets and companies. You can also invest in dividend stock funds, which provide consistent distributions that can be reinvested for further growth. Real estate investment trusts (REITs) offer exposure to the real estate market without the same level of risk and time commitment as direct real estate investments.

Know When to Seek Professional Help

If you don't have the time or interest to select and manage your investments, consider seeking professional help. Target-date funds are mutual funds designed for investors expecting to retire around a specific year. These funds automatically adjust their asset allocation over time. Alternatively, you can work with a financial advisor or use a robo-advisor, which is a computer-powered investment manager.

Remember, it's essential to consider your financial goals, risk tolerance, and investment horizon when selecting investments for your Roth IRA. Diversification and a long-term perspective are generally recommended for building a strong portfolio.

How to manage risk in a Roth IRA

When investing in a Roth IRA, it's important to consider how comfortable you are with risk. Your risk tolerance, investment horizon, and financial situation should all be taken into account when deciding how to allocate your money. Here are some tips for managing risk in a Roth IRA:

• Diversify your portfolio: Don't put all your eggs in one basket. Diversifying your investments across different asset classes, sectors, and geographic regions can help reduce risk. Fidelity recommends investing in a diversified portfolio of stock mutual funds, exchange-traded funds (ETFs), or individual stocks.
• Match your risk tolerance: Choose investments that align with your comfort level. If you're risk-averse, you may want to allocate more of your money to bonds or short-term securities. If you're comfortable with higher risk, you can invest a larger portion of your portfolio in stocks.
• Consider your time horizon: Age is a factor in determining your risk tolerance. Generally, younger investors can handle more risk because they have a longer time horizon and can ride out market ups and downs. As you get closer to retirement, you may want to adjust your allocation and reduce your stock exposure.
• Monitor and rebalance your portfolio: Regularly review your investments and make adjustments as needed. If one type of investment is performing better than another, you may need to rebalance your portfolio to maintain your desired level of risk.
• Seek professional advice: If you're unsure about how to manage risk, consider consulting a financial advisor or using a managed account service like Fidelity Go®. They can help you create a plan that aligns with your risk tolerance and financial goals.
• Be cautious with alternative investments: While a Roth IRA allows you to invest in alternative assets like cryptocurrency, be aware of the risks involved. Consult a tax or financial advisor before investing in these less traditional options.

How to withdraw from a Roth IRA

Withdrawing from a Roth IRA is a straightforward process, but there are some important rules to be aware of to avoid penalties. Here's a step-by-step guide on how to withdraw from a Roth IRA:

Step 1: Understand the Rules and Eligibility

Before making a withdrawal from your Roth IRA, it's important to understand the rules and eligibility requirements to avoid any penalties. Here are the key things to keep in mind:

• Age Requirement: Withdrawals must generally be made after reaching the age of 59½. Withdrawing before this age may result in taxes and penalties on the earnings in your Roth IRA.
• Five-Year Holding Period: Your Roth IRA must be held for at least five years before you can make a withdrawal without taxes or penalties.
• Qualified Distributions: To avoid taxes and penalties, your withdrawal should meet certain criteria, such as being used for a first-time home purchase, qualified education expenses, unreimbursed medical expenses, or certain emergency situations.
• Contributions vs. Earnings: You can withdraw contributions (the money you put into the Roth IRA) at any time without taxes or penalties. However, withdrawing earnings (the investment gains) may be subject to taxes and penalties if you don't meet the age and holding period requirements.

Step 2: Log In to Your Fidelity Account

Access your Roth IRA by logging in to your Fidelity account. From the dashboard, navigate to the "Accounts & Trade" section and select "Trade".

Step 3: Select the Type of Withdrawal

In the trade window, you will need to specify the type of withdrawal you want to make. You can choose between withdrawing contributions or earnings. Remember that withdrawing contributions is generally more flexible and can be done at any time without taxes or penalties. Withdrawing earnings may have additional considerations, as mentioned in Step 1.

Step 4: Complete the Withdrawal Process

Follow the instructions provided by Fidelity to complete the withdrawal process. Make sure to review the details of your withdrawal, including the amount and the account from which the funds will be withdrawn. Once you have confirmed the details, submit your request.

Step 5: Receive the Funds

After submitting your withdrawal request, Fidelity will process it, and you will receive the funds according to your chosen method. You may choose to receive the funds via direct deposit, check, or transfer to another account. The time it takes to receive the funds may vary, so please allow a reasonable amount of time for the process to complete.

Remember that withdrawing from a Roth IRA should be a well-considered decision. While it offers flexibility in accessing your contributions, early withdrawals of earnings may impact your long-term financial goals and retirement plans. Always review the rules and eligibility requirements to make informed choices.

Frequently asked questions