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Sizing Up Fidelity’s 10 Percent Match on IRAs

This is IRA promotions season at brokerages and banks: tread cautiously


Since it’s tax season, it’s also IRA promotions season: those mouthwatering lures from brokerage firms and banks to get you to bring them your Individual Retirement Account cash.
 
Fidelity’s new, unique 10 percent “IRA match” offer might grab your attention — but there’s a whole lotta fine print, as you’ll soon see.
 
IRA Bonuses and Matches

Usually, the IRA promotions are (fairly) simple, putting as much as $500 or so in your pocket. Right now, Ally Bank is dangling up to $500 and TD Ameritrade and E*TRADE will give you a maximum of $600. (You need to deposit or transfer at least $200,000 to Ally and $250,000 to Ameritrade or E*TRADE to get their maximum cash gifts.)
 
Fidelity, though, is playing off the idea of the free match that workers can get from employers for putting money into a 401(k) or 403(b) plans. “It’s designed to incent saving,” says Lauren Brouhard, Fidelity’s Senior Vice President of Retirement Products. “We think it’s different and innovative and really helps play off what we know has worked very well in the 401(k) savings market.”

(MORE: Has the IRA Lived Up to Its Promise?)
 
With its IRA Match, you transfer a Traditional or Roth IRA or a Rollover IRA to Fidelity — whether you’re a current Fidelity customer or not — and the firm will give you a 10 percent match. Well, kinda sorta.
 
Here’s how IRA Match really works:
 
After you make the IRA rollover, you need to make an IRA contribution at Fidelity over the next three years; then you’ll get the match each year. “It stretches out the benefit and helps create savings habits,” says Brouhard.
 
Who Gets a 10 Percent Match

And that 10 percent match? It’s only for people bringing Fidelity $500,000 or more. The IRA Match is on a sliding scale, based on the size of the IRA you deliver (Fidelity calls this a “reward tier” system):
 
IRA of $10,000 to $49,999: 1 percent match
IRA of $50,000 to $99,999: 1.5 percent match
IRA of $100,000 to $249,999: 2.5 percent match
IRA of $250,000 to $499,999: 5 percent match
IRA of $500,000 or more: 10 percent match
 
As you can see, there’s no match for IRAs smaller than $10,000. And clearly, the best matches go to people with IRA rollovers, not those who’ve been squirreling away an annual contribution for a few years.
 
What's Really Being Matched

The match isn’t calculated on the size of the IRA you transfer to Fidelity, as you might think. It’s based on the amount of the IRA contributions you’ll be making.

(MORE: Retirement Accounts for the Rest of Us)
 
So, rather than getting a $50,000 match on that $500,000 IRA, your match would be up to $650 if you’re 50 or older (and contribute the legal maximum of $6,500) or $550 if you’re younger (and contribute the maximum $5,500). The maximum total bonus: $1,950.
 
What Doesn't Qualify for the Match

You can’t get the IRA Match by transferring a self-employed SEP or SIMPLE IRA. Also, direct 401(k) rollovers don’t qualify either. “We think it’s very important to engage participants in workplace plans in proper discussions about the decision of whether to keep their money in their plan or roll it over and want to be sure the individual is making an informed decision,” says Brouhard.

(MORE: Uncle Sam May Want to Aid Your Retirement)
 
Unlike some other IRA promotions which end when tax season is over, Fidelity’s has no deadline. You do, however, need to transfer the money to Fidelity within 60 days of registering for the match.
 
Should You Sign Up?

While the IRA Match and other promotions might be better than getting a toaster, Walter Updegrave, of RealDealRetirement.com, urges caution before signing up.

“I think such promotions could lead people to focus on the little picture (and little in the way of extra gains) when they should be focusing on the big picture: their overall investing strategy, including things like their risk tolerance, having the right mix of stocks, bonds and cash and keeping expenses low,” he says.
 
Updegrave says he’s not sure he’d be inclined to “go through the hassle of doing a trustee-to-trustee transfer just to get the reward.” And, he notes, compared to the promotions at places like Ally Bank, Fidelity’s program “seems to be a bigger commitment, since I’ve got to commit new funds in the future to get it” for all three years.
 
Taxes and The Match Game

One more thing: How will the Internal Revenue Service view that IRA Match? 
 
Fidelity’s advice, in its fine print: “While we don’t report reward amounts as annual IRA contributions, you may have reporting requirements regarding these funds. We recommend speaking with a tax advisor to make sure you’re in compliance with any regulations.” Any taxes resulting from the bonus reward, Fidelity notes, “are your responsibility.”

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