I recently opened an IRA account with Fidelity. They have some sort of reward program running where they give additional $100 for qualifying accounts. So if I contribute $6000 and Fidelity contributes $100, would it be considered that I have over contributed? If yes, how can I go about fixing it?
update: they actually put the $100 reward into my ira account.
So if I contribute $6000 and Fidelity contributes $100, would it be considered that I have over contributed?
No, the $100 are investment income. If it is in a taxable account it would be reported as interest on a 1099-INT. In an IRA account it has no immediate tax consequences, your IRA just grew by $100 more.
If you overcontributed - for whatever reason - you have till tax day (in 2022, that's Apr/18) to do an 'excess contribution withdrawal', which removes the excess contribution, together with the gains they made. Typically, they email you a check for the total, and it's yours to keep.
If you do it later or never, the excess contribution will be taxed with a penalty, every year over and over, until you do it.
However, as others mentioned, it is probably not the case, as the bonus would go in a standard account or be a cash payment. It is taxable, btw... but taxed money is still money, so don't worry.
Alternatively, they could make it an 'dividend' or 'interest' into the account; then it would not be a contribution, but treated like interest or dividends you made by investing - it's yours, and when you take it out, it's taxable.
I thought this should be addressed in the fine prin.
I followed the link Current Special Offers at Fidelity to see if they gave more information. Yes it does mention IRA and Roth IRA as valid accounts.
That webpage lead to Introducing the Fidelity Starter Pack which has the steps:
- Open an eligible account
Use promo code FIDELITY100 when opening the Fidelity Starter PackSM, The Fidelity Account®, a Fidelity® Cash Management Account, Roth IRA, or traditional IRA.
- Deposit at least $50
Fund your account within 15 days by depositing $50 or more.
- Get paid!
Who doesn't love getting paid? We'll deposit $100 within 25 days of your account being opened.
This means that if you put the money in just before tax day the $100 will arrive after tax day.
The led to the FAQ
Do I have to keep the $100 cash reward at Fidelity once I receive it?
Yes. While you don't need to keep your initial deposit of $50 in the new account for more than the qualification period, you must keep the $100 cash reward (minus any losses related to trading, market volatility, or margin debit balances) in the eligible account for a minimum of 90 calendar days starting from when you receive the reward.
Do I need to pay taxes on the $100 cash reward?
You are encouraged to consult with your tax professional about appropriate tax reporting and treatment relating to this offer and the deposit of the cash reward in your account. See terms and conditions for more information.
That tells us the money goes into the new account you opened. That means the $100 will go into the IRA or Roth IRA. It has to stay in that account for 90 days. So you won't be getting a check or a deposit into your checking or savings account.
The terms and conditions page does discuss the income requirements for the IRA/Roth IRA. It does mention taxes one other time:
Cumulative bonus awards credited to taxable accounts associated with your social security number or tax identification number, as applicable, including those held at an affiliate of Fidelity, totaling $600 or more within a calendar year will appear on your consolidated Form 1099. You are encouraged to consult with your tax professional about appropriate tax reporting and treatment relating to this bonus award and the deposit of the bonus award in your account. Any taxes resulting from the bonus award are your responsibility.
That wasn't exactly what I was expecting to see. But it does say that if it goes to taxable account and you have $600 in bones you will see it on the 1099. I would have though if it was interest or a dividend the threshold would have been much lower.
Then I remembered one these pages said it started in late January. If that bonus was considered a contribution then they would have to make sure you could not over contribute to the account. If they didn't prevent you from doing so everybody would be upset. Now the bank could claim that the $100 bonus was a 2022 contribution, but the forms would have to make that clear. Of course since it is already 2022, somebody could have been already made a 2021 contribution at some other financial institution and wanted to get a jump on the retirement and was ready to make a 2022 contribution. Which means they would also have to be blocked from over contributing.
I find it odd that they never directly address the issue. That means they either didn't consider the issue, or there is no issue. I know, dangerous thoughts.
