Fidelity does allow fractional shares in Roth IRAs, and you can buy them through most of their investment options

Yes. Fidelity lets you purchase fractional shares in a Roth IRA through their mutual funds, exchange-traded funds (ETFs), and stocks. This means you do not have to wait until you have enough cash to buy a full share of an expensive stock — you can invest smaller amounts and own a piece of it instead. Fractional shares are particularly useful in a Roth IRA because your contribution room is limited each year, and fractional ownership lets you spread that money across more investments.

The way fractional shares work depends on what you are buying. Fidelity mutual funds have always allowed fractional shares by default — you can invest any dollar amount and own a proportional piece of the fund. ETFs and individual stocks are different. Fidelity added fractional share trading for both in 2020, so you can now buy $50 worth of a $300 stock, for example, without waiting for the price to drop.

Key Takeaways

  • Fidelity mutual funds allow fractional shares in Roth IRAs with no minimum purchase amount beyond what you contribute.
  • You can buy fractional shares of ETFs and individual stocks in a Roth IRA through Fidelity's standard trading platform.
  • Fractional shares do not cost extra fees and trade during regular market hours, the same as full shares.
  • Dividend reinvestment in mutual funds and ETFs automatically creates fractional shares when the dividend amount does not equal a full share price.

How fractional shares work in Fidelity mutual funds

Mutual funds are the simplest case. When you invest money in a Fidelity mutual fund inside your Roth IRA, you own a fractional share automatically. If you put $500 into a fund with a net asset value (NAV) of $47 per share, you own 10.64 shares — the decimal part is the fractional share. You do not have to do anything special or request this; it happens by default.

This applies to all Fidelity mutual funds, including their own Fidelity-branded funds and funds from other companies that Fidelity carries. The fractional share represents your exact ownership stake in the fund. When the fund pays a dividend, your fractional shares receive their proportional dividend payment. If that dividend is reinvested (which is the default in most Roth IRAs), it buys more fractional shares.

Fractional shares of ETFs and individual stocks

Fidelity allows fractional share purchases of both ETFs and stocks in a Roth IRA through their standard trading interface. You can enter a dollar amount instead of a share quantity — for example, "buy $200 of Apple stock" rather than "buy 1 share." The system calculates how many fractional shares that dollar amount represents at the current market price and executes the trade.

Fractional shares of stocks and ETFs trade during regular market hours (9:30 a.m. to 4 p.m. Eastern time on weekdays when the market is open). They do not trade during pre-market or after-hours sessions. If you place an order for fractional shares outside market hours, it will execute at the next market open. There is no additional fee for buying fractional shares — the commission structure is the same as for full shares.

Dividend reinvestment and fractional shares

When you own fractional shares of an ETF or stock in your Roth IRA and that investment pays a dividend, Fidelity automatically reinvests the dividend by default. If the dividend amount is less than the current share price, it buys fractional shares instead of waiting to accumulate enough for a full share. This is true for mutual funds as well.

You can turn off dividend reinvestment if you want, though most people leave it on in a Roth IRA because reinvesting takes advantage of tax-free growth. If you turn it off, dividends will sit in your Roth IRA cash balance until you decide what to do with them.

Roth IRA contribution limits and fractional shares

Your annual Roth IRA contribution limit (currently $7,000 for most people under 50, or $8,000 if you are 50 or older) is the same whether you buy fractional or full shares. Fractional shares do not change how much you can contribute each year. What they do change is how you can use that contribution room — you can now spread a smaller amount across more investments instead of being forced to buy only full shares.

For example, if you have $2,000 to invest and want to own pieces of five different stocks, fractional shares let you put $400 into each one. Without fractional shares, you would be limited by the price of each stock and might not be able to own all five with your available cash.

Selling fractional shares

You can sell fractional shares through Fidelity just as easily as you sell full shares. You can enter a dollar amount you want to receive, and Fidelity will calculate how many fractional shares to sell to reach that amount. Alternatively, you can specify the exact number of shares (including the fractional part) you want to sell. Sales execute during market hours at the current market price, with no additional fees.

In a Roth IRA, selling fractional shares does not trigger any tax consequences — that is one of the main advantages of the Roth structure. You can buy and sell as often as you want without worrying about capital gains taxes, as long as the money stays inside the Roth IRA account.

Frequently Asked Questions

Can I set up automatic investments in fractional shares through Fidelity?

Yes. Fidelity allows automatic investment plans (sometimes called dollar-cost averaging) that buy fractional shares on a schedule you set — weekly, biweekly, or monthly. You specify a dollar amount, and Fidelity buys fractional shares of your chosen investment at that frequency. This works for mutual funds, ETFs, and individual stocks.

Do fractional shares count toward my Roth IRA contribution limit the same way full shares do?

Yes. The contribution limit is based on the dollar amount you put into the account, not the number of shares you own. Whether you invest $7,000 in one mutual fund or spread it across fractional shares of 20 different stocks, it counts as a $7,000 contribution.

What happens to my fractional shares if I transfer my Roth IRA to another bank?

Fidelity will transfer fractional shares to the new institution as long as that institution accepts them — most major brokers do. The transfer process is the same as for full shares. If the receiving institution does not accept fractional shares of a particular investment, Fidelity may sell that position and transfer the cash instead, though this is rare.

Are there any restrictions on which stocks or ETFs I can buy as fractional shares?

Most stocks and ETFs available through Fidelity can be purchased as fractional shares. Some very low-priced stocks (penny stocks) and certain illiquid securities may not be available for fractional purchase, but standard stocks and ETFs have no restrictions.