Fidelity 401k Review: Is it Your Best Option?

Fidelity 401k Review: Is it Your Best Option?
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Fidelity Investments Inc. is an American multinational financial services firm based in Boston, MA. The company specializes in annuities, mutual funds, IRAs, and the Fidelity 401k plan, among other things. Fidelity is a brokerage firm – it helps with the buying and selling of financial assets. The company is commonly known for its retirement savings plan, which currently has over 58,700 active participants and accounts for $16.8 billion.

Founded in 1946 by Edward C. Johnson II, Fidelity started out as Fidelity Management & Research, and, after 73 years, has expanded operations worldwide. The company currently employees more than 50,000 people, and in 2017, had an operating income of $5.3 billion while generating $18.2 billion in revenue. 

Fidelity currently has an ‘Assets Under Management’ value of $2.46 trillion. In 2019, the company announced that it would begin offering cryptocurrency trading to its customers.

Fidelity Leadership Team

Abigail Johnson – Chairman & CEO

Michael Durbin – President at Fidelity Investments & Fidelity Institutional

Jean Raymond – Chief Financial Officer

Mihir Shah – Senior Vice President & Chief Technology Officer

Brooke Allen Forbes – Head of Technology & Chief Information Officer

Fidelity 401k Plan Overview

Here are some of the features of Fidelity’s 401k Plan.

Trading Experience

In terms of trading, you can take a hands-off approach where you don’t primarily handle the investments yourself. You can go for a Single Fund Solution with either a Target Date fund (based on expected retirement date) or a Target Allocation fund (based on risk tolerance). You can also choose a Managed Account, in which professional investors will analyze you, and your retirement goals, and invest accordingly.

The other option is a more hands-on approach, in which you research, monitor, and execute your investments yourself. With Fidelity’s trading tools, you can create a diverse portfolio and manage your investments.

Usability

Fidelity helps you turn your 401k savings into a steady stream of income once you retire. You can opt for an annuity, among other things, so that you get a guaranteed cash flow for your expenses. You can also take a loan out of your 401k account in case of an emergency (at 50% of the amount vested in the account).

Opening an account is extremely easy and you can start trading with just a few clicks. In addition, the trading app is optimized and user-friendly.

Range of Features

Fidelity offers a flexible plan design with online access to your retirement accounts through the NetBenefits website. There are employer matching contributions and participation loans. Fidelity also has a mobile app where you can manage your portfolios.

The IRS maximum contribution is $19,000 per year, but you can put in an extra $6,000 if you’re older than 50. For employees, there are pre-tax contributions and tax-deferred growth potential. For employers, there are tax-deductible contributions.

Portfolio Analysis

Fidelity provides over 3,700 no-transaction-fee mutual fund options and zero-fee index funds that you can invest in. You can also invest in stocks, fixed income bonds, ETFs, annuities, and options, among others. For investments in securities, you can invest in only one type, in several, or none at all.

Customer Service

When you sign up for a Fidelity 401k plan, you get clearly communicated administrative fees and full details about the competitive average expense ratios. You also get access to Fidelity’s tools, resources, and professional experience, to tweak your 401k plan according to your needs. Fidelity offers education and communication programs that help people become ready for their retirement. You can call their 24/7 hotline (866-418-5173) to connect with retirement professionals, to discuss your plan.

Fees, Cost, and Expenses

There are no opening and closing costs, as well as, no annual fees. However, there is a $4.95 fee for online US equity trades.

If you’re investing your 401k in a Rollover IRA, there is no minimum investment and no management costs. If you’re going towards Digital Investing & Advice, there is a minimum investment of $0-25,000 (depending on the type of account) and the management costs are 0.35-0.50% of the gross advisory fee. If you’re choosing Wealth Management, there is a minimum investment of $250,000 to $2 million, with a management cost of 0.50-1.50% of the gross advisory fee.

To find out more about investing your 401k with Fidelity, click here.

Margin Rates

The following are Fidelity’s margin rates.

fidelity-margin-rates

Fidelity 401k Review

Fidelity has a solid 401k plan, but there are positives and negatives to every offering. Here are the most noteworthy pros and cons of Fidelity’s 401k plan.

Fidelity 401k Pros

The following are some points that set Fidelity apart as a brokerage company:

  • Fidelity has a BrightScope Rating of 86, which is much higher than the average in its peer group.
  • The trade executions are fast, easy, and trackable.
  • All the research related to investment opportunities like Exchange-Traded Funds (ETF) is detailed and easy to understand.
  • You get access to Fidelity’s Active Trader Pro. It’s an all-in-one trading platform that’s available to all customers.
  • Fees and commissions are extremely low and the fee structure is easy to understand.

The company provides access to tools, resources, and a wealth of information on their website, mobile app, and investment centers.

What is Fidelity Best Known for?

Fidelity plans come in the top 15%, in terms of company generosity, salary deferral, and account balances. With over 59,000 participants and an average account balance of $290,000, the company provides a high return on investments.

Fidelity is mostly known for:

  • Retirement Services
  • Stock Trading
  • Penny Stock Trading
  • ETFs
  • 401k Rollover Investments

Fidelity is mostly praised for having no account minimum and low fees, along with excellent customer support and employee benefits.

Other Brokerage Firm Alternatives

You can compare Fidelity with the following competitor companies to get a better idea of the quality of their service.

  1. Legg Mason – With over 1,900 active participants and a BrightScope rating of 90, Legg Mason comes close to giving Fidelity a run for its money. In 2018, the company generated $2.9 billion in revenue. They specialize in providing financial and investment management services, and are based in the US and Ireland.
  2. BlackRock – Founded in 1988, BlackRock offers several mutual funds, ETFs, and close-ended funds across more than 1,000 asset classes. The company has a BrightScope score of 87. They have operations around the world and generated a revenue of $14.2 billion in 2018.
  3. TIAA – Specializing in brokerage operations, investment management, and life insurance, TIAA is another alternative to Fidelity Investments Inc. They are based in New York, are ranked at number 79 in the Fortune 500, and generated a revenue of $41.052 billion in 2018.

Compared to its competitors, Fidelity is considered one of the better companies because of its low fees, solid customer service, and better returns – one reason companies that use Fidelity usually have higher employee retention.

Fidelity 401k vs Student Loan Benefits

The preferences of the modern workforce have changed over the years.

A recent survey involving 1,000 millennial workers revealed that 49% preferred receiving student loan assistance from their employers, over 401k plans.

To cater to these changing preferences, Uncle Sam has introduced the following acts:

Retirement Parity for Student Loans Act

Introduced in 2018, the “Retirement Parity for Student Loans Act” states that the employers are allowed to use their retirement plans to make matching student loan contributions for their employees. However, the payments should be made towards qualified student loans.

Employer Participation in Repayment Act

The “Employer Participation in Repayment Act” was introduced in 2019 by US Senator John Thune. Under this act, employers can make tax-free contributions of up to $5,250 towards repaying the student loans of their employees.

Today, FutureFuel.io is working with employers such as Transamerica and Salesforce to use this new tax-free contribution as a secret sauce for employee engagement. FutureFuel is a platform that enables employers to provide student loan assistance at scale as an employee benefit, all through an easy-to-use dashboard. Employees use this dashboard to easily manage their student debt and check how their employer’s contributions help them pay it off faster.

Is the Fidelity 401k Plan Right for You?

While things like flexible benefits plans work, a good retirement plan works better. Fidelity is one of the best companies out there for 401k plans, since it provides a great collection of mutual funds to invest in, along with multiple no-expense-ration index funds. With its easy-to-use trading platform, low fees & commissions, and user-friendly interface, Fidelity provides a solid retirement option.

Regardless of how much money you have to invest, Fidelity has proven to be one of the best options.