I opened my Roth IRA, what should I do now?

Investing
#1

I open a traditional IRA which I change to Roth IRA once my pension is transferred from my previous job to Fidelity. My question is what do I do once the money gets there? I will continue to deposit money so I max out the 6K yearly. I am only 31 so I have the time needed so the money can grow.

#2

Welcome @Rachel_Wallace!

I think it’s important to understand the “tax status” of things. I suspect the money in your pension has never yet been taxed. It went in there straight from your paycheck. When you do the “direct transfer rollover” from your pension to the Rollover/Traditional IRA with Fidelity, that money will still not be taxed. BUT once you CONVERT IT to a Roth IRA, that’s a “taxable event”. Meaning all the money inside of a Roth IRA is “post tax” so the government wants to get PAID it’s due when you make that conversion. So basically, be cautious about converting as you’ll owe tax on all the dollars converted. Leaving it in the Traditional/Rollover IRA is a fine option until you’re confident about the tax implications.

That said, I think a coherent plan for you might look like this:

  1. Do the direct transfer rollover from your pension to a Rollover IRA
  2. Once that is complete, sell everything inside that Rollover IRA (if necessary) and use all that money to buy an index fund. I would take a look at target date index funds. Since you’re 31 and have a Fidelity account, I’d look at FDEWX.
  3. Leave the Rollover IRA alone. Don’t contribute or touch it until either you decide to convert to a Roth IRA, you Rollover another former employer account into it, or you retire and start withdrawing! Basically, it just sits there and grows.
  4. Open a Roth IRA (a second account… you’ll likely have a few accounts inside of your Fidelity account).
  5. Set up $500/month auto-investments into that Roth in the exact same investment that you chose for the above account. That will get you to your $6K Roth limit
  6. If you have more to contribute, walk through this checklist, open the accounts necessary and keep investing early and often!

You got this! Report back here with any updates! :slight_smile: