Where your contributions go when you set up a Fidelity Simple IRA

When you contribute money to a Fidelity Simple IRA, that money does not automatically sit in a savings account earning interest. You must choose where it goes — into stocks, bonds, mutual funds, or other investments that Fidelity offers. This choice is called allocation, and you make it during setup or change it anytime afterward.

Fidelity gives you three main paths: pick individual investments yourself, use a pre-built portfolio based on your age and risk tolerance, or let Fidelity manage it for you. Each path requires different steps and different levels of attention from you going forward.

Your allocation decision affects how much money you will have at retirement. A portfolio heavy in stocks grows faster but drops sharply in downturns. A portfolio heavy in bonds grows slowly but stays more stable. Most people split the difference based on how many years until they retire.

Key Takeaways

  • You choose your allocation when you open the account or during your first contribution, and you can change it anytime without penalty.
  • Fidelity offers three allocation methods: self-directed (you pick each investment), target-date funds (automatic rebalancing based on your retirement year), or managed accounts (Fidelity picks for you).
  • If you do not choose an allocation, Fidelity will place new contributions into a default fund, usually a money market fund that grows very slowly.
  • Your allocation applies to both employee deferrals and employer contributions unless you set them separately.

Self-directed allocation: picking your own investments

If you choose self-directed allocation, you log into your Fidelity account and select specific funds or stocks for each contribution. Fidelity lets you browse their full investment menu — mutual funds, exchange-traded funds (ETFs), individual stocks, and bonds — and decide what percentage of your money goes into each one.

To set this up, log into your Fidelity account online or through the mobile app. Go to your Simple IRA account settings and look for "Investment Allocation" or "Fund Selection." You will see a list of available investments with their names, ticker symbols, and past performance. Click on each one to read its description and fee structure. Then enter the percentage you want in each investment. The percentages must add up to 100 percent.

Self-directed allocation gives you the most control but requires you to understand what you are buying. If you do not know the difference between a growth fund and a value fund, or if you do not want to think about this every year, the other two methods may suit you better. You also have to rebalance yourself — if stocks rise and now make up 80 percent of your portfolio instead of your intended 60 percent, you have to manually move money back into bonds.

Target-date funds: automatic adjustment as you age

A target-date fund is a single investment that automatically shifts from stocks to bonds as you get closer to retirement. You pick the fund based on the year you plan to retire — for example, "Fidelity Freedom Index 2050" if you plan to retire around 2050. The fund manager rebalances it automatically, moving your money into safer investments as your target date approaches.

To choose a target-date fund, log into your Fidelity account and find your allocation settings. Look for funds with names like "Fidelity Freedom" or "Fidelity Freedom Index" followed by a year. Select the year closest to when you expect to retire. If you are 35 and plan to retire at 67, choose the 2055 or 2060 fund. If you are 55 and plan to retire at 67, choose the 2035 or 2040 fund. Then set 100 percent of your contributions to go into that single fund.

Target-date funds require almost no maintenance from you. You do not have to rebalance or think about whether stocks are too high. The downside is less control — you cannot customize the exact mix of stocks and bonds, and different target-date funds use different glide paths (the schedule for shifting from stocks to bonds). Check the fund's description to see whether it matches your risk tolerance.

Managed accounts: Fidelity chooses your allocation

Fidelity offers a service called Fidelity Go or advisory services where Fidelity's algorithms or advisors build and manage your allocation for you. You answer a short questionnaire about your age, income, risk tolerance, and retirement date. Fidelity then creates a custom portfolio and rebalances it automatically.

To set up a managed account, contact Fidelity directly by phone at 1-800-343-3548 or through your online account. Ask about managed account options for Simple IRAs. You will answer questions about your financial situation and goals. Fidelity will then set up your allocation and begin managing it. Some managed accounts charge an advisory fee (usually 0.25 to 0.50 percent of your balance per year), while others are included in your Fidelity account at no extra cost. Ask about fees before you commit.

Managed accounts work well if you do not want to think about investing at all. The trade-off is that you have less control and may pay a fee. You can switch to self-directed or target-date allocation anytime if you change your mind.

What happens if you do not choose an allocation

If you set up a Fidelity Simple IRA but do not select an allocation, Fidelity will automatically place your contributions into a default fund. For most Fidelity Simple IRAs, this is a money market fund or a stable value fund. These funds are very safe but grow very slowly — often just 4 to 5 percent per year, sometimes less.

Leaving money in the default fund is a common mistake. Over 30 years, the difference between a money market fund and a balanced portfolio can be hundreds of thousands of dollars. If you have not chosen an allocation, log into your account today and pick one. You can change it anytime without penalty or tax.

Changing your allocation after you have started contributing

You can change your allocation at any time. This applies to future contributions and, in most cases, to money already in your account. Log into your Fidelity account, go to your Simple IRA settings, and select "Change Allocation" or "Rebalance." You can move existing money into different investments or change where new contributions go.

Changing your allocation does not trigger taxes or penalties, even if you move money between investments. Fidelity processes allocation changes within one to three business days. If you are making a major life change — a new job, a health issue, or a shift in your retirement timeline — it is a good time to review your allocation and adjust it.

Many people change their allocation once a year, usually in January or after their birthday. Others change it only when their circumstances shift. There is no rule about how often you should change it, but ignoring it for decades can leave you with a portfolio that no longer matches your goals.

Allocating employee deferrals and employer contributions separately

In a Simple IRA, you contribute your own money (called employee deferrals) and your employer contributes money on your behalf (called employer contributions). By default, both go into the same allocation. But Fidelity allows you to set different allocations for each if you want.

For example, you might put your own deferrals into a growth-focused portfolio and your employer contributions into a more conservative one. Or you might direct employer contributions into a target-date fund while managing your own deferrals yourself. To set this up, contact Fidelity and ask about separate allocation elections for employee and employer contributions. Not all employers allow this, so check with your plan administrator first.

Most people use the same allocation for both types of contributions. Splitting them adds complexity and requires more monitoring. Only do it if you have a specific reason — for example, if your employer contributions are may provide and you want to take more risk with your own money.

Frequently Asked Questions

Can I change my allocation without losing money or paying taxes?

Yes. Moving money between investments within your Simple IRA does not trigger capital gains taxes or penalties. Fidelity processes the change within one to three business days. You can change your allocation as often as you want.

What if I do not know which investments to pick?

Use a target-date fund based on your expected retirement year, or contact Fidelity about a managed account. Both require minimal knowledge from you. Target-date funds are free; managed accounts may charge a small advisory fee. Either beats leaving money in a money market fund.

Should I put all my money in one fund or spread it across several?

A single target-date fund is already diversified across stocks, bonds, and other assets. If you pick individual funds, spreading across three to five funds (such as a U.S. stock fund, an international stock fund, and a bond fund) is common. Holding 20 or 30 different funds adds complexity without much benefit.

What if my employer matches contributions — does that money go into my chosen allocation?

Yes, unless you set up separate allocations for employer and employee contributions. By default, employer contributions follow the same allocation as your deferrals. Ask your plan administrator if separate allocations are allowed under your plan.

Can I move my Simple IRA to a different investment company and keep the same allocation?

Yes, but you will need to set up the allocation again at the new company. The process is called a rollover or transfer. Contact the new company and ask them to request your account from Fidelity. Once the money arrives, you will choose a new allocation based on what that company offers.