Roll-over my old 401k from Fidelity to Vanguard

Question

I have a 401k (both traditional and roth) at Fidelity and recently tried a roll-over from the Fidelity 401k to Vanguard IRA (Rollover IRA and Roth IRA). When I called Fidelity to request a roll-over after setting up the IRA accounts at Vanguard, they told me that there were only two options for the roll-over:

(a) I first move the 401k to Fidelity IRA and then do a wire-transfer from Fidelity IRA to Vanguard IRA. This option, however, will incur a fee.

(b) Fidelity sends a check to me and then I am responsible for sending it to Vanguard.

I do not like either option and want to have a direct transfer -- i.e., Fidelity directly sending the checks to Vanguard. The direct transfer was also the option advised by Vanguard when I created IRA accounts at Vanguard. But, the Fidelity agent said that they could send the check only to the addresses on their file and that the Vanguard address is not on the file.

Is it generally a case? Most articles about roll-over say that I should necessarily use "direct roll-over" but I was surprised that this was not available at Fidelity. Has anybody tried a rollover from Fidelity 401k to Vanguard IRA? What option did you choose then?

Thanks,

Answer 1

Direct roll-overs / trustee to trustee transfers are typically initiated by the receiving institution. Therefore you need to work with Vanguard. They will have a form in which you provide them with your fidelity account info and they will then contact Fidelity and initiate the transfer.

Do not take the option of being sent a check made out to you by Fidelity (an indirect rollover). There are too many ways to muck up and get hit with penalties if you are the middleman in the process. I believe in most, if not all, cases the IRS now requires a 20% withholding on indirect 401k rollovers. This is because too many times people would initiate a roll over but not complete it either at all or within the allowed 60 day window and then come tax time be unable to pay the tax and penalty on the distribution. The tricky part of that withholding is that you still have to deposit that amount into the new account otherwise it becomes a distribution subject to tax and penalties (and that means coming up with the money from other accounts).

So in summary talk to Vanguard and set up an institution to institution transfer. They souls make this very easy as they want your money. And do not do any kind of rollover where you come into personal possession of the money.

If the check is made out to Vanguard but sent to you to resend to Vanguard that should not be an issue as that is still a trustee to trustee transfer.

Fidelity may have a minor account closer fee that will be deducted from the value of the account before it is sent.

Answer 2

I don't really see the big deal in taking the check. Fidelity will issue you a check, made payable to VANGUARD FBO [Your Name]. All you have to do is simply hand the check over to Vanguard to deposit into your new IRA. Simple and done.

To answer your question: Whether or not a custodian, tpa, or recordkeeper will do a direct-deposit or transfer of your funds is completely at their discretion. My company rarely does direct transfers. We issue a check to you. It's just the way we do it.

You can talk to Vanguard and see if they can initiate the direct transfer with Fidelity - but honestly, this may just delay getting your funds moved and you're going to end up with a check anyways. And if Vanguard does somehow convince Fidelity to do the wire transfer - there is still going to be a fee. Wires are expensive. Unless Vanguard is willing to pick up the wire fee for you (doubtful).

Other's have also mentioned that TPA's will withhold a mandatory 20% federal tax withholding if they send you a check. This is only true if the check gets made payable in your name. But the taxes should not be withheld as long as the check is made payable to your new Vanguard IRA.

So my final opinion: Just take the check and give it to your Vanguard rep. It's literally that simple.