Understanding Fidelity Tax Withholding Brokerage Account Implications

Fidelity tax withholding on brokerage accounts can have significant implications for your finances.

The IRS requires Fidelity to withhold 24% of investment income for non-resident aliens.

You'll need to provide your Social Security number or Individual Taxpayer Identification Number (ITIN) to Fidelity to avoid withholding.

Fidelity will automatically withhold 10% of investment income from non-qualified dividends for certain accounts.

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The tax implications of your Fidelity brokerage account can be a bit confusing, but I'm here to break it down for you. You can withdraw funds from your account, but did you know that IRA withdrawals have specific IRS regulations?

To report your IRA withdrawal to the IRS, your account will be audited and the withdrawal will be reported accordingly. You can also expect a withholding percentage to be applied to your withdrawal.

Your withholding percentage might change, and if you look online, you might see a different percentage than what you previously elected. This is because the federal tax withholding percentage can vary.

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State tax implications of an IRA distribution vary, but it's essential to consider them when making a withdrawal. If you place a request for an IRA withdrawal after December 15, your withdrawal will be processed for the next year and reported accordingly.

Here's a quick summary of the tax implications you should consider:

To open a Fidelity tax withholding brokerage account, you'll need to understand the withholding and reporting requirements.

You'll need to complete a W-8BEN form if you're a non-US citizen investing in US shares.

This form is required for each account holder in a joint account, so make sure to fill it out accurately to avoid any issues.

Suggestion: Rrsp Non Resident Withholding Tax

Your withholding percentage is automatically set to 10% for federal income tax unless you elect otherwise. This is the default rate required by IRS regulations for Fidelity to withhold from your total withdrawal.

You can change your withholding percentage to any whole number between 10 and 99, or you can choose not to have federal tax withheld at all. Keep in mind that you'll need to have a U.S. address on file with Fidelity to opt out of withholding.

Regardless of your withholding percentage, you're still responsible for paying all federal, state, and local taxes, as well as estimated tax payments and penalties. This includes potential penalties for withdrawals before age 59 1/2.

If you've elected a withholding percentage for a previous withdrawal, it only applies to that specific withdrawal, as online requests are treated as one-time, unique requests.

To complete a W-8BEN form, you'll need to provide some essential information. Each account holder in a joint account must complete a W-8BEN form if they want to invest in US shares.

If you have a Junior ISA, joint account, or Power of Attorney, there are a few additional details to consider. For a Junior ISA, you'll need to sign the form as the registered contact.

You'll need to complete a new W-8BEN form if you're transferring your ISA, Junior ISA, or Investment Account to Fidelity and have US shares in any of these accounts. This is because Fidelity requires a new form, even if you submitted one with your previous provider.

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The deadline to complete the new W-8BEN form is within two weeks of submitting the transfer instruction. We'll make a few additional checks for a Junior ISA or Power of Attorney, so be prepared to provide more information if needed.

Here are some specific situations where you'll need to complete a W-8BEN form:

The calculation of capital gains tax on Canadian stocks is the same as for U.S.-domiciled securities, once you understand how to calculate the capital gains.

Canadian dividends are complicated from a tax perspective due to their treatment by the IRS. Quarterly dividend income generated by equity investments is taxable on your U.S. tax return.

To better understand the tax implications, let's break down the key points:

Your Minimum Required Distribution (MRD) is calculated once a year, on January 1st, by dividing your prior year's year-end balance by your life expectancy factor from the Uniform Lifetime Table or Spousal Exception Joint Life Expectancy Table.

This calculation is based on the assets in your Fidelity account on the last business day of the prior year, excluding any "in transit" transfers or rollovers deposited during the current year. Make sure to include those balances to accurately determine your MRD.

You can take your MRD in one withdrawal or make multiple withdrawals throughout the year. To set up scheduled, automated withdrawals, use the "Automated Withdrawals" link, or take your distribution anytime before December 31.

Your Minimum Required Distribution is calculated once per year on January 1st, based on your prior year's year-end balance. This balance includes only assets in your Fidelity account on the last business day of the prior year.

To determine your MRD, you'll divide your prior year's year-end balance by your life expectancy factor from the Uniform Lifetime Table or Spousal Exception Joint Life Expectancy Table. This table is indicated next to an asterisk at the bottom of the Minimum Required Distribution Estimate.

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The year-end balance used for the MRD calculation does not include "in transit" transfers or rollovers deposited in your account during the current year. You'll need to include those balances in your MRD calculations to get an accurate result.

MRDs are taxed as ordinary income for the tax year in which they are taken, and will be taxed at your applicable individual federal income tax rate. This means you'll pay taxes on your MRD according to the tax rate that applies to your income level.

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You can take your required distribution in one withdrawal, or make multiple withdrawals throughout the year.

You can set up scheduled, automated withdrawals using the "Automated Withdrawals" link, or take your distribution anytime before the December 31 deadline.

If you don't set up automated withdrawals, be sure to allow enough time for any trades to settle before the last business day of the year.

You can make a withdrawal from your IRA online, or request a withdrawal by phone or at a Fidelity Investor Center.

If you have multiple IRAs with Fidelity, look for the "MRD for all your Fidelity IRAs" total in the MRD bricklet, which will include required distributions from Traditional, Rollover, SIMPLE IRAs, and SEP IRAs.

This total will not include inherited IRAs, as different calculations apply, or ROTH IRAs, as distribution requirements don't apply to these accounts.

It will also not include other Retirement Plan accounts and annuities.