What to Do With a Fidelity 402(f) Tax Notice

When Fidelity sends a “Special Tax Notice Regarding Plan Payments,” it is fulfilling a legal requirement under Section 402(f) of the Internal Revenue Code. This notice is a standard part of managing your savings after a job change. This document is not a bill or a warning, but an informational guide. Its purpose is to explain the tax rules that apply to your retirement money and outline the options you have for moving it.

The notice is triggered when you become eligible to receive a payment, known as an “eligible rollover distribution,” from your employer-sponsored retirement plan. This happens when you separate from your employer. The document is designed to help you make an informed decision about what to do with the funds you have accumulated in your 401(k) or other similar plan.

Understanding the Special Tax Notice

The Special Tax Notice details your options for an “eligible rollover distribution,” which is a payment from your plan that you can move to another retirement account. Your primary choice is between a direct rollover and an indirect rollover. A direct rollover is a transfer where Fidelity sends your funds straight to another retirement account, such as an Individual Retirement Account (IRA) or your new employer’s 401(k). This method is not a taxable event, and no taxes are withheld.

You can also receive the payment directly, in an indirect rollover. If you choose this option, Fidelity is required by federal law to withhold 20% of the taxable portion of your payment for income taxes. For instance, if you have a $10,000 distribution, Fidelity will send you a check for $8,000, with the remaining $2,000 sent to the IRS as a tax prepayment. You then have 60 days from the date you receive the funds to deposit them into a new retirement account.

To complete a full, tax-free rollover, you must deposit the entire $10,000. This means you would need to use $2,000 of your own money to make up for the amount that was withheld. If you only deposit the $8,000 you received, the $2,000 that was withheld will be considered a taxable distribution. The 60-day rule is strict, and failing to meet this deadline can have significant financial consequences.

If you decide not to roll over the funds at all, the distribution becomes a cash-out. The 20% that was withheld is forwarded to the IRS to cover part of your income tax liability on the withdrawal. The entire distribution amount will be included in your taxable income for the year. If you are under the age of 59 ½, you will likely face an additional 10% early withdrawal penalty on the taxable portion of the distribution.

Required Information for a Rollover

Before you can initiate a rollover from your Fidelity account, you must gather specific information about the destination account. This preparation is a necessary step to ensure a smooth transfer. The most important piece of information is the name of the financial institution that will be receiving the funds, whether it is a brokerage or a different plan administrator.

You will also need the exact account number for your new retirement plan. This could be a Traditional IRA, a Roth IRA, or a 401(k) with a new employer. Knowing the precise type of account is important, as moving pre-tax 401(k) funds into a Roth IRA is a taxable event. For transfers completed by check, you must have the correct mailing address for the receiving institution.

It is recommended that you open the new account before you start the rollover process with Fidelity. Having the account established and ready to receive funds prevents potential delays or complications. You can typically find all the necessary details on an account statement from your new institution or by logging into its online portal.

The Fidelity Rollover Process

Once you have decided on a rollover and gathered the required account information, you can begin the process within the Fidelity NetBenefits account. After logging in, you will need to navigate to the specific retirement plan you intend to roll over. Within your plan’s dashboard, look for a menu or link related to distributions, often labeled “Loans & Withdrawals” or “Rollovers.”

Clicking this will launch an online tool that guides you through the steps. The system will prompt you to enter the destination account information you previously collected, such as the receiving firm’s name, the account number, and the type of account. You will select whether you want a direct rollover or a payment made to you.

After you submit the rollover request, Fidelity will provide a confirmation number for your records. The processing time for the transfer can vary but typically takes between five and ten business days. Depending on the option you selected, the funds may be transferred electronically or a physical check will be mailed. A check will go directly to the new institution for a direct rollover or to your address on file for an indirect rollover.