Fidelity Matches Some IRA Contributions

03/02/2015 12:24 pm ET | Updated Apr 29, 2015

Incentives matter -- and money is a great incentive. That's what Fidelity figured out when it announced they will match IRA contributions for people who roll over an IRA into Fidelity funds -- and make up to three years of additional contributions. Then Fidelity will match those annual contributions by up to 10 percent each for three consecutive years.

This is truly a win for investors who qualify -- and a win for Fidelity, as it will most certainly be a magnet for IRA rollover dollars. A matching contribution for retirement dollars has long been a staple of defined contribution plans, such as 40l(k) and 403(b) plans. About 70 percent of companies offer some form of matching contributions. Although formulas for the match vary by company, it is clear that it creates an incentive to contribute to a retirement plan -- at least up to the matching level.

A match is "free money" -- and it doesn't take a lot of financial sophistication to understand that fact!

But individuals who are not covered by a company defined contribution plan must use an Individual Retirement Account. And -- until now -- there was no way to get any kind of a match. Fidelity's new and trademarked IRA Match program is the first of its kind.

Lauren Brouhard, SVP of Retirement for Fidelity Investments says the goal is to encourage consumers to build a nestegg for retirement, noting that "far too few are in a position to get an employer match, but they already know the concept of a matching contribution." Since Fidelity manages so many corporate retirement plans, they are in a perfect position to see the impact of matching contributions.

Details of the Fidelity IRA Match

The Fidelity program is aimed at those who already have accumulated assets in their IRA -- not for those just starting out. The details make that clear:

1. You have to rollover an IRA worth at least $10,000 into a new or existing IRA at Fidelity to get even the smallest match. (The money must be rolled from another IRA -- and cannot come directly from a 40l(k) plan.)

2. The "matching contributions" comes in tiers: If you roll a $10,000 account, you are eligible for a 1 percent match on your next three consecutive years of additional contributions. The match percentage grows, based on the amount you roll into Fidelity. The maximum is a 10 percent match on rollover amounts over $500,000.

3. Once the transfer is complete, in the next three subsequent years, Fidelity will apply the match to the amount you contribute each year. So, for example, here's what happens if you rolled that half million dollar IRA to Fidelity: if you're age 50 or older and qualify (based on earned income) to contribute the maximum of $6500 annually to an IRA, then each year you would receive a 10 percent match, or $650. Over three years making the maximum contribution, you would receive a total of $1950 -- free money that will grow tax-deferred in your IRA over the years.

Clearly this is a marketing coup for Fidelity. By taking only accounts that are rolled over from other IRAs, they syphon assets from competitors. Even in the largest case, they are paying only $1950 to acquire a half million dollars in assets. Within the huge Fidelity marketing budget this must be very cost effective, justifying the payout when you think about the fees that will be earned on the money being transferred.

But for the huge baby boom generation that is nearing retirement, this is a truly attractive offer. They may have multiple large IRAs, previously rolled over from former employers' 40l(k) plans. There's no reason NOT to be at Fidelity. Fidelity offers a wide variety of investment choices at a very low cost, plus they offer free investment allocation advice to clients with large amounts of assets. And, consolidating retirement assets makes calculating minimum required distributions easier once you have reached age 70-1/2.

This is IRA season. You can still make a contribution based on 2014 earnings, up until April 15th -- and you can also make your 2015 contribution now. If you already have a Fidelity IRA, those new contributions would qualify for the IRA Match program. Or put them into an existing IRA somewhere other than Fidelity, you can then transfer it to take advantage of the matching offer.

Thirty years ago, the newspapers (back then the primary advertising media) were filled with enticements to open a $2,000 IRA account. But that was then. Now, there are huge IRA's sitting out there -- many rolled from company 40l(K) accounts as boomers have changed jobs or retired. The IRA asset-attraction game has changed.

If you're sitting on several large IRA accounts, Fidelity's IRA Match plan is certainly worth a closer look. And that's The Savage Truth.

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