What should we do with a Rollover IRA?

General
1

My wife has a Fidelity Rollover IRA, and it’s currently around $4.6K. All of it is sitting in FDRXX, which is getting about 5% interest.

She also has a 403(b) with a target date fund, and she’s maxing that out with her employer match.

What should we do with this Rollover IRA? Is it possible to convert it into either a traditional or Roth and put it into something like FXAIX? It just feels like it’s not doing much, but I don’t know what the best move is.

2

You probably don’t need to convert it to anything. It’s already a traditional IRA. You can invest it in any fund you like.

3

Exactly, keeping it as a traditional IRA simplifies things, and there are plenty of investment options available.

4

There are a few reasons you might want to convert it or roll it into a 401k/403b (assuming it’s all pre-tax). One reason is if you want to do backdoor Roth conversions, having a traditional IRA can complicate that.

Here are your options:

  1. Leave it as is and just change the investments to something more fitting.
  2. Roll it into your employer’s plan (if they allow it) to keep accounts consolidated and make backdoor Roth conversions easier.
  3. Convert part or all of it into a Roth IRA. You’d have to pay income taxes on whatever amount you convert, so if you’re in a low tax bracket now, it might be a good idea.
5

The issue isn’t the Rollover IRA itself, it’s the FDRXX inside it. You should switch from that money market fund to a diversified stock fund or a low-cost target date fund.

6

Switching to a stock or target date fund worked for me. I made that change a while ago and have seen better returns since then.

7

Couldn’t you just sell it and buy something like VOO? Seems like a straightforward solution.

8

Looks like it’s time for a change then! Maybe consider moving it into a stock fund?

9

Great advice :+1:

Thanks!

10

Are you planning to add more to it? Also, take a look at other Fidelity funds like Contrafund or Magellan instead of just sticking with FDRXX.

11

Thanks for the tip! I’ll definitely consider adding those funds to the mix.

12

Consider moving the funds into stocks or bonds.

13

You could convert the Rollover IRA to a Traditional or Roth IRA and then invest in funds like FXAIX for growth. Just keep in mind the tax impact if you go with the Roth conversion.

14

No need to convert it. You can just treat the Fidelity Rollover IRA like a traditional IRA and invest from there.

15

I rolled over my old 401k into a Rollover IRA and have it split between FZROX, FSPSX, and FNILX. I’m just letting it grow while also contributing to a separate Roth.

16

I put mine into an AI trading bot for the stock market. The profits have been good so far, and it’s been an exciting ride!

17

That sounds suspicious to me. Are you sure it’s legit?

18

Looks like my comment got removed, but I was just suggesting some safe stock funds.

19

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20

I’m not a big fan of target date funds because the expense ratios tend to be higher than S&P 500 index funds. The average is about 0.3%, but it can go up to 0.5%. If you have a low-cost option like Vanguard’s VTIVX at 0.08%, that’s not bad, but how does it compare to just sticking with an S&P 500 fund?

401k/403b plans usually have a low-cost S&P 500 option with an expense ratio of about 0.015%. Those tend to perform better, too, with returns around 25% in 2023. Just something to consider.