Fidelity 401K--> conversion to roth (and CMA vs SPRXX?)

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Topic Author
hollerg
Posts: 23
Joined: Wed Jan 11, 2017 2:21 am

Fidelity 401K--> conversion to roth (and CMA vs SPRXX?)

Post by hollerg »

My employer has Fidelity as the 401K administrator, and for the first time I wish to use the 401k as a source for converting before-tax dollars into after tax dollars by creating a Roth-ira account at Fidelity.

I had expected a trustee to trustee move money directly into a traditional IRA account with the Roth conversion to follow, out of that account, however the Fidelity representative stated that the money would go into a "cash" account. Is that considered going to the "trustee" or into my possession, which would trigger the 20% withholding?

Second the representative stated that the SPRXX fund was no different than the Fidelity CMA account. After studying them there appears to be some significant differences and I would like someone to double check my understanding.

The CMA has no fees, is FDIC insured but pays only 0.1 % APY on any money in the account. Normally I would consider something like SPRXX, but if I'm reading things correctly, the SPRXX fees are 0.42% while Lipper lists only a YTD return of 0.36%. So as it exists today, using SPRXX would be losing money every day, for every dollar passed through the account, correct?

Finally is the CMA account able to be classified as an IRA account or are only the MMF accounts like SPRXX capable of qualifying for the trustee to trustee transfer?
Laundry_Service
Posts: 397
Joined: Wed Sep 15, 2010 11:52 am

Re: Fidelity 401K--> conversion to roth (and CMA vs SPRXX?)

Post by Laundry_Service »

Your return of SPRXX is after the fees, so you will net .1% or whatever the current, almost negligible rate is.

Does your 401k plan offer in service rollovers to 401k? Most don't. You may be able to use a CARES / COVID distribution for a one time distribution from your 401k before the year is up.

Just so I/we are understanding correctly you have a current and active 401k plan through your employer that you are currently contributing to and would like to convert some of these assets to Roth?

Can you contribute to Roth with new contributions to your current plan? I'm not sure that you have the options that you think you may.
Topic Author
hollerg
Posts: 23
Joined: Wed Jan 11, 2017 2:21 am

Re: Fidelity 401K--> conversion to roth (and CMA vs SPRXX?)

Post by hollerg »

I am retired and over 59 1/2. This is just a conversion of before-tax funds into after-tax Roth money. I just found out I can make an in-service conversion of before-tax to after-tax dollars in my plan. I started a separate thread exploring the pros and cons of the "in-service" conversion Vs the external conversion.

just to clarify, if the fees are 0.42 % and the interest on the SPRXX were 0.36 % then in effect I would have a net reduction of 0.06% in the account balance?
chassis
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Joined: Tue Mar 24, 2020 4:28 pm

Re: Fidelity 401K--> conversion to roth (and CMA vs SPRXX?)

Post by chassis »

@hollerg

You are asking about opening a new Roth IRA account with Fidelity, correct?

This is very simple, and Fidelity does this all time for many clients. For my own account, I view "cash" or "core" accounts, as Fidelity calls them, as zero interest and zero yield accounts to park money. The cash account is, for most people, a temporary holding place prior to moving the funds into an investment that meets the account holder's needs. Avoid getting tangled up in what the cash account is, or isn't. It is a safe low/no yield account used for temporarily holding funds until a better idea comes up.
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whodidntante
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Re: Fidelity 401K--> conversion to roth (and CMA vs SPRXX?)

Post by whodidntante »

How are you accomplishing the in-service distribution? This is typically not allowed for pre-tax payroll contributions made directly to the plan. Are you performing the conversion to Roth within the plan? If so, that's just a subaccount within your existing plan.
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