How to Close a Fidelity Roth IRA Account

Closing a Fidelity Roth Individual Retirement Account (IRA) can be a straightforward procedure. Unless, the account has a zero balance, however, you will need to determine where the funds in the account should go. As a Roth IRA has some special tax characteristics, you should examine all of your available options to maximize the benefits to your overall tax and financial situation.

Difficulty:

Moderately Easy

Instructions

Things You'll Need

• Fidelity Roth IRA account

1. Determine where your funds should go. If your account has a zero balance, this obviously won't be an issue; however, if you have money in your Fidelity Roth IRA, that money will need to go somewhere. If you have another Roth IRA, with Fidelity or another institution, you can set up a trustee-to-trustee transfer, in which your funds will automatically be sent to your other Roth IRA account. If you wish to withdraw the money, make sure that there are no adverse tax consequences. Although a Roth IRA is an after-tax vehicle, there are some restrictions to obtaining this benefit. For example, most contributions need to have been in the account for five years before they can be withdrawn tax-free. In addition, there are tax penalties assessed if you withdraw the funds before you are 59 1/2 years old.

2. Consider recharacterization. If you have a traditional IRA account, you can consider converting your Roth IRA into this account, a process known as "recharacterization." Generally, this strategy is considered if the value in your Roth IRA account has dropped dramatically. As a contribution to a Roth account is with after-tax funds, you are effectively paying tax on a higher value of assets than you currently own. The calculations can get complicated, and you may consider the assistance of a tax adviser, but a recharacterization is another way to close a Roth IRA account.

3. Contact Fidelity. Using the information on your statement or on the Fidelity website, contact the appropriate person or department in charge of your Roth IRA account. Explain which choice you have made regarding closing your account: transfer, liquidation or recharacterization. Fidelity will provide you with the necessary forms to affect your account closing.

4. Monitor your decision. If you are transferring or recharacterizing your funds, it is important that your entire account ends up in the right place. The IRS places a 60-day timeline on both of these types of conversions, so make sure all of your assets are moved with time to spare. If you are liquidating your account, make sure that no residual income, such as reinvested mutual fund dividends, are left in your account, and that a zero balance shows on your next statement. If your account is not fully closed, you will continue to receive statements and year-end tax documents, and you may be required to make additional IRS tax filings.

References

• IRS: Publication 590; Roth IRAs