Fidelity Roth IRA review

About Fidelity

Fidelity Investments Inc., (Fidelity) is one of the world’s largest investment companies. It offers various investment products and services, including investment accounts such as taxable brokerage accounts, 529 college savings plans, retirement accounts (e.g. Roth IRAs), funds such as mutual funds and ETFs, and financial advisory services. It also offers other financial products, such as a cash management savings account, a credit card, and life insurance.

Fidelity has been around for 74 years, has 30 million individual investors who use its services, and is managing $7.8 trillion in customer assets as of September 2019.

What are the benefits of Fidelity’s Roth IRAs?

No management fees

Fidelity does not charge a fee to open and invest in a Roth IRA through the company. It also doesn’t charge a commission or fee for trading US Stocks, ETFs, and Fidelity mutual funds online. Its free service is for the self-directed service. Fidelity does offer advisory services for different fees based on a percentage of your investments with different minimum investment requirements. The services vary depending on the type of advisory support, including a fully digital robo-advisor service, a hybrid digital with coaching from an advisor service, and more.

Customize your own portfolios with a wide range of investments to choose from

When you open a Roth IRA with Fidelity, you can decide what you want to invest in—whether that’s in stocks, bonds, ETFs, mutual funds, or CDs. Fidelity provides you the flexibility to customize your portfolio as you see fit, and there is a lot to choose from. As an asset manager, Fidelity has also created its own mutual funds and ETFs that you can invest in, some of which don’t have any fund fees. If you don’t want to bother with deciding what to invest in, then the Fidelity self-directed (free) service might not be right for you.

Robust research and planning tools to guide you

Fidelity provides many tools to help guide you through your investing process. It has a retirement planning tool that creates a retirement plan for you and lets you know how much you might need for retirement, how much you’re on track to have, and what changes you can make to improve your retirement savings. It also has various research tools to help you determine what investments might be best for you. For example, it has an ETF screener tool that lets you search and compare ETFs by themes or some other criteria.

Who is Fidelity good for?

• Self-directed, hands-on investors that want to pick and manage their own investments
• Investors that want to have access to a wide range of investments to choose from
• Investors that don’t want to pay a management fee or one based on AUM

Who is Fidelity not for?

• Investors that do not want to choose on their own what to invest in
• Hands-off investors looking for active management of their accounts
• Investors looking to see all of their investments, including those held outside of Fidelity in one place

Drilling into Fidelity’s fees

Advisory fees

Fidelity offers Roth IRAs for free. Its free service doesn’t come with any advisory support. If you are interested in advisory services, Fidelity has a few options at different prices.

Fund fees

If you decide to invest in ETFs and/or mutual funds, they generally come with fund fees (aka expense ratios). These fees are for managing a fund. These management fees vary depending on the fund and is a percentage of your investments. For example, for a $1,000 investment, a 0.15% fund fee is $1.50. The fees are automatically deducted by the fund. Fidelity offers some ETFs and mutual funds without any fees.

Trading fees

Fidelity does not charge a commission fee for online US stock, ETF, and option trades. There’s a $1 trading fee per bond or CD, but US Treasuries traded online are free. Fidelity mutual funds and hundreds of other mutual funds also do not have any transaction fees. Some mutual funds that you can invest in through Fidelity do come with trading fees.

Account transfer and withdrawal fees

Fidelity does not have a fee for account transfers or withdrawals.

What goes into a portfolio?

For Fidelity’s self-directed service, you can select what goes into your portfolio. You can choose from individual stocks, bonds, US treasuries, mutual funds, ETFs, and FDIC-insured CDs. Fidelity automatically puts any uninvested cash into the Fidelity® Government Money Market Fund (unless you choose another cash option).

In terms of mutual funds, there are over 10,000 funds from Fidelity or other companies that you can choose from. Among the funds, you can select ones based on the type of security you want to invest in (e.g. U.S. stocks), on the risk level you feel comfortable with, on your goal target date, on the sector you’re interested in (e.g. health care), and more.

For your Roth IRA, if you don't want to research which funds might fit your retirement needs and do the ongoing work necessary to maintain your portfolio, Fidelity offers funds called Fidelity Freedom® Funds, which are commonly known as target date funds. These funds are designed around your anticipated year of retirement. They include a mixture of stocks, bonds, and short-term assets selected by Fidelity. Their asset allocation is automatically adjusted over time as you get closer to your retirement age, and they’re automatically rebalanced to ensure that the portfolio make-up doesn’t shift too much from their original design as the market changes. Since these funds are actively managed, they do come with higher expense ratios (fund fees). For example, the Fidelity Freedom® 2050 Fund (for those anticipated to retire in the year 2050) and Fidelity Freedom® 2060 Fund both includ a 0.75% expense ratio.

How easy is it to do things at Fidelity?

Opening a Fidelity Roth IRA account

You can open a Fidelity Roth IRA online or over the phone with a Fidelity customer support member. To open the account, you’ll need to provide personal information like social security number, date of birth, legal/mailing address, occupation, employer's name and address, and such. All of this is standard required information for setting up investment accounts. The information is used for regulatory reporting and for investment qualifications. Once you open a Fidelity Roth IRA, you can make deposits to it directly, roll over a 401(k) account with a former employer, or transfer an IRA held at another institution.

Buying and selling investments

Once you have a Roth IRA with Fidelity, you can trade stocks, mutual funds, and ETFs online by logging into your Fidelity account. Stocks, mutual funds, and ETFs trade differently. Stock and ETF trades are executed throughout the day when the market is open. Fidelity also offers extended hours for its clients after market hours. Trading for stocks and ETFs closes at 4 p.m. ET, but you can continue trading stocks and ETFs in the after-hours market. Note: the difference between the price at which you sell and the price at which you buy tends to be wider after hours and there are fewer shares traded, so only the most experienced traders might want to consider trading after market hours.

Mutual funds are executed once a day after the market closes at 4 p.m. ET. If you buy or sell shares of a mutual fund, your trade will be executed at the next available share price for the fund, or net asset value (NAV), which is calculated after the market closes and typically posted by 6 p.m. ET. This is the standard process for all mutual funds and not just those traded through Fidelity.

Withdrawing or distributing from a Fidelity Roth IRA

Withdrawing from a Roth IRA is called a distribution. You can initiate a Roth IRA distribution online at Fidelity. The number of days for the distribution to process varies depending on the transfer method. If you complete your withdrawal before 4 p.m. ET on a business day, then an electronic fund transfer takes 1-3 business days, a paper check takes 5-6 business days, and a bank wire or a transfer between Fidelity accounts are immediate. Fidelity does not charge a fee for withdrawals. Some banks charge a fee for receiving wire transfers, so consider confirming with the receiving bank if there’ll be a fee. Note: withdrawing from a Roth IRA could have tax implications, such as a penalty for when you take money out of your Roth IRA early. See IRS distribution rules and consult a tax advisor if you have questions.

Converting a traditional IRA to a Roth IRA

You can start a conversion of another type of IRA into a Roth IRA online or by phone with the help of a Fidelity customer support member. To convert a non-Fidelity IRA to a Fidelity Roth IRA, you’ll need to first open a Fidelity traditional IRA account, if you don’t have one already. Then, transfer your existing IRA assets to your Fidelity traditional IRA account. Once that’s done, you can convert your IRA to a Roth IRA. The online process will have instructions to follow as you go through each of the steps. Note: there may be tax implications for converting your IRA. Do consult a tax advisor if you have questions.

How is your Roth IRA protected at Fidelity?

Asset protection

If Fidelity must liquidate their assets, your Roth IRA investments are insured by the Securities Investor Protection Corporation (SIPC). Each “separate capacity” account is protected up to $500,000 with a limit of $250,000 for uninvested cash. For more details on what’s a “separate capacity” account, visit the SIPC site. The SIPC is a U.S. government creation but not an agency of the U.S. and insures all brokerage accounts up to $500,000. SIPC is funded by all of its member brokers/dealers. In some cases, it also protects against unauthorized trading or theft in the account. Market losses and promises of investment performance are not covered.

Any uninvested cash balance in a Fidelity Roth IRA is also swept to one or more Fidelity program banks that are eligible for The Federal Deposit Insurance Corporation (FDIC) insurance. FDIC is a U.S. government agency that insures cash deposits at FDIC member banks, generally up to $250,000 per account.

Other protections

Fidelity is registered with the Securities and Exchange Commission (SEC), an independent agency of the United States federal government that enforces and proposes federal securities laws and rules and regulates the securities industry. It’s also a member of the Financial Industry Regulatory Authority (FINRA), an independent non-governmental organization that writes and enforces rules that control registered brokers and broker-dealer firms in the United States.