To close a Roth IRA at Fidelity, move it to another custodian by direct transfer rather than cashing it out. A transfer keeps the account tax-free. A distribution to your bank can trigger income tax and a 10% penalty on earnings if you are under 59 1/2 and have not met the five-year rule.
Key takeaways
- Fidelity charges $0 to transfer your Roth IRA out and $0 to close the account, so the method you pick is about taxes, not fees.
- Closing by transfer (ACATS to another firm's Roth IRA) is not a taxable event. Your money stays inside the Roth wrapper and keeps growing tax-free.
- Closing by distribution can be taxable. Your own contributions always come out tax-free and penalty-free, but earnings can face income tax plus a 10% early-withdrawal penalty.
- Roth ordering rules work in your favor: the IRS treats withdrawals as contributions first, then conversions, then earnings last. You only reach the taxable layer after you have pulled out everything you put in.
- If you must take a distribution, you have 60 days to redeposit it into another IRA to undo the tax hit, and you get only one such indirect rollover per 12 months.
Close by transfer vs close by withdrawal
| Close by transfer (direct/ACATS) | Close by withdrawal (distribution) | |
|---|---|---|
| Federal tax | None. Not a taxable event. | Contributions tax-free; earnings taxed as income if the distribution is non-qualified. |
| 10% penalty | None. | Applies to earnings if you are under 59 1/2 and the account is under five years old, unless an exception fits. |
| Roth status | Preserved. Money stays tax-advantaged. | Lost on any amount you keep. That contribution room does not come back. |
| Fidelity fee | $0 transfer-out fee. | $0 account-closing fee. |
| How to do it | Open a Roth IRA at the receiving firm and request the transfer from that firm. | Sell holdings, then request a full distribution to your bank or by check. |
| Best for | Switching brokers or consolidating accounts. | Genuinely needing the cash and accepting the tax cost. |
When closing actually makes sense
Most people who say they want to close a Roth IRA really want to leave Fidelity, not leave the Roth. Those are different actions. Chasing lower fees, a better platform, or fewer accounts to track is a transfer, and a transfer costs nothing and changes nothing about your tax picture. Weighing brokers first is worth the time; our Robinhood vs Fidelity Roth IRA breakdown covers where each one leads.
A true distribution makes sense in a narrower set of cases: you have hit 59 1/2 and the account is at least five years old, so the whole balance is qualified and tax-free anyway; or you are withdrawing only contributions, which are always free to take; or an emergency leaves you no better option and you accept tax on the earnings portion. For high earners, permanently removing money from a Roth is usually the most expensive way to solve a cash-flow problem, because you cannot refill that space later.
Understand the tax before you touch the account
The five-year rule is the piece people miss. The clock starts on January 1 of the tax year of your first Roth contribution, and it applies to earnings, not to the contributions themselves. A distribution of earnings is qualified, meaning fully tax-free and penalty-free, only when you are 59 1/2 or older and at least five years have passed. Miss either test and the earnings you withdraw get taxed as ordinary income plus a 10% penalty, with a few exceptions such as a first home or disability.
Because of the ordering rules, a partial withdrawal often costs nothing. Say you contributed $40,000 over the years and the account is now worth $60,000. Pulling out up to $40,000 is treated as returning your own contributions: no tax, no penalty. Only dollars beyond that reach the $20,000 of earnings where tax can apply.
How to close a Roth IRA at Fidelity, step by step
If you are transferring to another firm (the tax-free path):
- Open a Roth IRA at the receiving broker. The account types must match, Roth to Roth, or you create a taxable event.
- Start the transfer from the new firm, not from Fidelity. You give them your Fidelity account number and they pull the assets through the ACATS system.
- Decide between an in-kind transfer, which moves your holdings as they are, or a cash transfer, which sells first. In-kind avoids selling and any tracking-error gaps. Note that Fidelity mutual funds may not transfer in-kind to another broker and can need to be liquidated.
- Let it settle. ACATS transfers usually complete in about five to seven business days. Once the balance is zero, Fidelity closes the emptied account, often automatically.
If you are taking a distribution (the possibly taxable path):
- Sell the holdings inside the Roth so the balance is in cash, and let the trades settle.
- Request a full distribution from Fidelity by transfer to your linked bank or by check, and choose your tax-withholding option.
- Confirm the account shows a zero balance and is closed, and keep the Form 1099-R Fidelity issues for your tax return.
- If you change your mind, redeposit the full amount into another IRA within 60 days to reverse the tax consequences, remembering the one-indirect-rollover-per-12-months limit.
Related reading
- Moving in from another custodian instead? See transferring Vanguard funds to Fidelity.
- Estate planning rather than closing? Read can you put a Roth IRA in a trust.
- For the bigger picture, start with our retirement planning hub.
Closing a Roth IRA at Fidelity is simple mechanically and free either way. The decision that matters is transfer versus withdrawal. When in doubt, transfer: you keep decades of tax-free growth and lose nothing. Reserve the distribution for when you actually need the cash and have checked which part of the balance is taxable.
Frequently asked questions
What is the best way to close a Roth IRA at Fidelity?
Move it to another custodian by direct transfer rather than cashing it out. A transfer through the ACATS system into another firm's Roth IRA is not a taxable event and keeps your money growing tax-free. A distribution to your bank can trigger income tax and a 10% penalty on earnings if you are under 59 and a half and have not met the five-year rule.
Does Fidelity charge a fee to close or transfer a Roth IRA?
No, Fidelity charges $0 to transfer your Roth IRA out and $0 to close the account, so the method you pick is about taxes, not fees. Because both paths are free, the decision that matters is transfer versus withdrawal. When in doubt, transfer, because you keep decades of tax-free growth and lose nothing.
How do you transfer a Roth IRA out of Fidelity step by step?
Open a Roth IRA at the receiving broker, then start the transfer from the new firm, not from Fidelity, giving them your Fidelity account number so they pull the assets through ACATS. Decide between an in-kind or cash transfer, then let it settle in about five to seven business days. Note that Fidelity mutual funds may need to be liquidated first.
Can you undo a Roth IRA distribution if you change your mind?
Yes, you have 60 days to redeposit the full amount into another IRA to reverse the tax consequences, but you get only one such indirect rollover per 12 months. If you are transferring instead, the account types must match Roth to Roth, or you create a taxable event.
How much of a Roth IRA can you withdraw tax-free?
You can withdraw up to the total of your own contributions tax-free and penalty-free, because Roth ordering rules treat withdrawals as contributions first, then conversions, then earnings last. If you contributed $40,000 and the account is now worth $60,000, pulling out up to $40,000 owes nothing; only dollars beyond that reach the $20,000 of earnings where tax can apply.