First Roth Conversion (Fidelity)

[imjustawarrior]

I want to use this thread to document my Roth conversion at Fidelity. This is the first time I will do a Roth Conversion, not counting backdoor Roth conversions. I will be going from my 401K at Fidelity through my IRA at Fidelity to my Roth IRA at Fidelity. I will use this process to also pay all my federal and state income taxes through withholdings for the year. The taxes will essentially be paid from my taxable brokerage account.

I do not want to move all my 401K to my IRA because I still do backdoor Roth conversions.
I am 58 years old.

I welcome feedback and questions. I will be making updates as I work through the process. Here is my initial plan:

1. Calculate dollar value to convert and taxes to be withheld by creating dummy 2025 tax return. I will convert to the NIIT threshold of $250k with a little margin. I will use dinkytown since it has been updated for federal. I will withhold to 90% of 2025 federal tax obligation. I will guestimate the amount to withhold for state to hit the 70% of 2025 Colorado tax obligation. dinkytown does not do state. TT is not available yet.

2. Have enough money in CMA to do 60-day rollover for amount withheld for taxes.

3. From Fidelity Netbenefits initiate direct, partial rollover. Fee is $20. Money taken from all funds. Direct to Fidelity IRA. It will go to the settlement fund.

4. Once money hits IRA, perform Roth conversion. Withhold enough tax (Federal and State) for everything for entire year. Make sure IRA is $0 so that it does not complicate backdoor Roth conversions. Convert multiple times if necessary to clean up any interest.

5. Deposit check for amount of tax to Roth marking Roth conversion and 60-day rollover on deposit form. Make check payable to "Fidelity Investments: FBO <My Name> " Put the account number in the memo line. Should show up as “Rollover Cash”.

6. Once money hits Roth, rebalance portfolio.

Steps 1 and 2 are complete.
Convert: $100k
Federal tax to withhold: $12k
State tax to withhold: $8k

Note: I have had other income and tax withholdings this year due to RSUs and deferred compensation. I also have income from dividends.

 

[oldtimer]

Does your employer allow distributions from 401k prior to 59.5?

 

[imjustawarrior]

Does your employer allow distributions from 401k prior to 59.5?

Yes. I am doing a rollover from the 401K to IRA. I retired in 2023.

 

[surprising]

I recently just did rollover of 401k trad and roth to IRAs in Fidelity. The process took over a month, with repeated calls to Fidelity as it was a multistep process and they couldn't automatically move from one step to the next without a verbal confirmation from me. And this was moving FROM fidelity TO fidelity! Much of that time my money was in limbo and untradeable, so there was potentially some lost opportunity. It's good you've started the process now as it will have a chance of completing by end of year!

 

[imjustawarrior]

I recently just did rollover of 401k trad and roth to IRAs in Fidelity. The process took over a month, with repeated calls to Fidelity as it was a multistep process and they couldn't automatically move from one step to the next without a verbal confirmation from me. And this was moving FROM fidelity TO fidelity! Much of that time my money was in limbo and untradeable, so there was potentially some lost opportunity. It's good you've started the process now as it will have a chance of completing by end of year!

Wow!
I was under the impression I should be able to initiate the partial rollover online and the money would show up in my IRA in a few days. I do not have a Roth 401K or anything out of the ordinary that I know of. I'll make sure I get going on this.

 

[MdaPetralia]

Once money hits IRA, perform Roth conversion. Withhold enough tax (Federal and State) for everything for entire year.

I believe if you are under 59 1/2, you will incur 10% early withdrawal penalty if you withhold taxes from the conversion.

 

[imjustawarrior]

I believe if you are under 59 1/2, you will incur 10% early withdrawal penalty if you withhold taxes from the conversion.

The 60 day rollover to the Roth makes everything whole and avoids the penalty.

 

[Al18]

There’s no reason the 401K to IRA shouldn’t be completed within a day, if your 401K and IRA are at Fidelity and most of your holdings are Fidelity funds.

 

[Qs Laptop]

<watching thread>

 

[imjustawarrior]

There’s no reason the 401K to IRA shouldn’t be completed within a day, if your 401K and IRA are at Fidelity and most of your holdings are Fidelity funds.

Basically all my stuff is at Fidelity.

This weekend I rebalance my portfolio, so I want the exchanges in the 401k to settle before I kick off anything else. Hopefully, I'll know the answer by the end of the week.

 

[Al18]

I wish you luck. The 60 day rollover process was not available a few years back. When I did my Roth IRA conversion in 2025, the Fidelity rep asked me if I wanted to do the 60 day rollover!

 

[MarieIG]

The 60 day rollover to the Roth makes everything whole and avoids the penalty.

Thanks for the clarification. (I saw your reference to withholding - and the paying taxes from the taxable brokerage - but I wasn't sure.) I am a fan of the 60 day rollover method.

 

[surprising]

Wow!
I was under the impression I should be able to initiate the partial rollover online and the money would show up in my IRA in a few days. I do not have a Roth 401K or anything out of the ordinary that I know of. I'll make sure I get going on this.

OK I'm remembering a few details that made my situation unique I guess. I had all my roth funds in a BrokerageLink account. It was a multistep process: 1) move out any non-roth funds from BrokerageLink, 2) move the rest back to roth 401k and close BrokerageLink, 3) transfer from roth 401k to roth IRA.

If I recall, the rollover from trad 401k to trad IRA was simple, and took about a week.

 

[Mark1]

I do not want to move all my 401K to my IRA because I still do backdoor Roth conversions.

This caught my eye. I'm not sure what this means, but do you have post-tax money in your 401K net benefits account?

 

[SecretlyFI]

I recently just did rollover of 401k trad and roth to IRAs in Fidelity. The process took over a month, with repeated calls to Fidelity as it was a multistep process and they couldn't automatically move from one step to the next without a verbal confirmation from me. And this was moving FROM fidelity TO fidelity! Much of that time my money was in limbo and untradeable, so there was potentially some lost opportunity. It's good you've started the process now as it will have a chance of completing by end of year!

Wow. I did the same kind of rollover in September - from former employer 401k & roth 401k at Fidelity to trad IRA and Roth IRA at Fidelity. The rep called me on the agreed-upon day, he conferenced in the “rollover guy”, who verbally confirmed with me all the balances and what would happen. All but 1 fund had to be liquidated because the employer-specific funds were not available to IRA’s. The money was in the IRA’s the next morning and I was able to buy back similar/equivalent funds that day. I even got a $2000 bonus for keeping the money with Fidelity instead of moving the IRA’s to my other broker, Vanguard. Maybe the ease of the process depends on who the rep is that’s initiating it.

 

[imjustawarrior]

This caught my eye. I'm not sure what this means, but do you have post-tax money in your 401K net benefits account?

I do not have any post tax money in my 401K. A backdoor Roth is a two step process:
1. non-deductible IRA contribution
2. convert the IRA to a Roth

Earned income is required for step 1. There is a pro-rata rule for Roth conversions. Backdoor Roth conversions are cleaner if the IRA is at $0 at the end of the year.

 

[surprising]

Wow. I did the same kind of rollover in September - from former employer 401k & roth 401k at Fidelity to trad IRA and Roth IRA at Fidelity. The rep called me on the agreed-upon day, he conferenced in the “rollover guy”, who verbally confirmed with me all the balances and what would happen. All but 1 fund had to be liquidated because the employer-specific funds were not available to IRA’s. The money was in the IRA’s the next morning and I was able to buy back similar/equivalent funds that day. I even got a $2000 bonus for keeping the money with Fidelity instead of moving the IRA’s to my other broker, Vanguard. Maybe the ease of the process depends on who the rep is that’s initiating it.

Yeah that was not my experience. Even for my trad 401k which went smoothly, it took several days before the transfer happened. I figured it was just the way fidelity works because even for simple trades, it can take several days for the trade to settle into the core money market account. Etrade and Schwab don't have this several day settlement issue.

 

[imjustawarrior]

Yeah that was not my experience. Even for my trad 401k which went smoothly, it took several days before the transfer happened. I figured it was just the way fidelity works because even for simple trades, it can take several days for the trade to settle into the core money market account. Etrade and Schwab don't have this several day settlement issue.

ETFs and MFs are supposed to settle T+1. If you are not seeing that, you should talk to someone.

 

[Out-to-Lunch]

Wow. I did the same kind of rollover in September - from former employer 401k & roth 401k at Fidelity to trad IRA and Roth IRA at Fidelity. The rep called me on the agreed-upon day, he conferenced in the “rollover guy”, who verbally confirmed with me all the balances and what would happen. All but 1 fund had to be liquidated because the employer-specific funds were not available to IRA’s. The money was in the IRA’s the next morning and I was able to buy back similar/equivalent funds that day. I even got a $2000 bonus for keeping the money with Fidelity instead of moving the IRA’s to my other broker, Vanguard. Maybe the ease of the process depends on who the rep is that’s initiating it.

My experience was similar. In my case, I had the funds in BrokerageLink, but in generic Fido funds that were also available in my new Fido IRA. They did the transfer in-kind, and I think it settled in a day or two.

And coincidentally, this morning I did a partial Roth conversion in-kind. It appears to have been ~immediate. I think it won't fully settle until tonight, but it is already showing those shares in the Roth and not in the tIRA.

 

[Spock]

What is the reason for mailing a check vs. calling in and having Fidelity xfer the amount withheld from taxable to Roth?

When I did a conversion a couple of months ago, I was advised to:
step 1: call-in to initiate conversion specifying 100% withholding (I was covering 2024 tax paid for safe harbor)
step 2: call-in again to xfer the amount withheld from taxable to Roth and ensure the "rollover box" was checked (directed to do so by the rep in step 1).

The rep in step 2 was a little less familiar... had to go talk to some one first... came back and said no problem and described the process as a "mid-air roth conversion".

 

[imjustawarrior]

What is the reason for mailing a check vs. calling in and having Fidelity xfer the amount withheld from taxable to Roth?

When I did a conversion a couple of months ago, I was advised to:
step 1: call-in to initiate conversion specifying 100% withholding (I was covering 2024 tax paid for safe harbor)
step 2: call-in again to xfer the amount withheld from taxable to Roth and ensure the "rollover box" was checked (directed to do so by the rep in step 1).

The rep in step 2 was a little less familiar... had to go talk to some one first... came back and said no problem and described the process as a "mid-air roth conversion".

With the check I don't have to call in and have the rep go talk to someone first. It probably is a toss up on which approach is easier and less error prone. I'm trying to get a process in place that does not require any phone calls. That is my personal preference.

Last week I was using the online chat to find out how to fill out the check. It took over 20 minutes to get the answer. The rep wanted to quiz me about everything to make sure I really knew what I was doing. I finally had to explain I knew what I was doing and please answer my question.

 

[surprising]

ETFs and MFs are supposed to settle T+1. If you are not seeing that, you should talk to someone.

OK just sold something in my trad IRA. Let's see how long it takes to settle. Another complaint I have is I sent them a message over a week ago and they still haven't responded.

 

[Exchme]

When I moved money from the company's 401K provider to Vanguard, it took them several days and they wrote a paper check which took a week to get to Vanguard. Meanwhile, the market went down 4% while I was out so I got lucky. (I had a similar size move doing something else later when the market went up 4% while I was out, so I didn't stay lucky.)

The big issue with Roth Conversions though is that the calculation techniques described by OP don't look beyond this year. Roth Conversions should look at things holistically over your lifetime and take your heirs' tax situation into account as best you can. With a large enough tax deferred balance and still being younger than the age when IRMAA kicks in, the optimum Roth Conversion this year might well be larger than the start of NIIT.

I like Pralana as a holistic calculator, it and handles the federal tax code (NIIT, AMT, OBBBA, ACA, SS benefit taxation, LTCG phase-in, step up basis on death, lets you input a tax rate for heirs). It allows lots of types of income and expenses. It takes a shot at state taxes, but some states are very complex, so it may have gaps there. It can do historical and Monte Carlo in addition to deterministic. A feature that it has that other programs do not is that it allows you to hold your assets in a tax efficient manner with bonds in tax deferred and it will hold your overall asset allocation constant over time. Other programs don't hold the asset allocation constant when you hold different things in different accounts, so the Roth Conversion answers are no good.

It has an optimizer for Roth Conversions that steps through all the ordinary income tax brackets in all the years of your plan and includes ACA in that. You can often do a little better then the optimizer by shooting at one of the other breakpoints, but if you try to save taxes in year 1 by doing less conversions, then something spills out into higher brackets or across other breakpoints in later years, so its method ends up being pretty close to the best you can do.

 

[Dtail]

I have done Roth conversions many years with Fidelity using the online process with no issues.

 

[Al18]

FYI if you want to do withholding for a Roth IRA conversion, this is not possible to do online. A call to Fidelity is required.