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Investment Products and Services Launches

Fidelity launches RMD-focused funds; Duetsche launches U.S. Multi-Factor fund; TFC launches ESG investment strategy; and more.

By Javier Simon editors@plansponsor.com | June 15, 2017
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Fidelity Launches RMD-Focused Funds

This year, the first wave of Baby Boomers with tax-deferred retirement accounts will become required minimum distribution (RMD) age. Beginning in 2018, millions of Americans will be taking RMDs from these accounts each year.

To facilitate this process, Fidelity Investments has launched the Fidelity Simplicity RMD Funds. These mutual funds combine professionally-managed investment strategies with optional automated calculation and distribution methods to satisfy annual RMD requirements on the investor’s behalf. Each fund in the lineup carries a date in five-year intervals from 2005 to 2020 to help investors find an appropriate fund to reflect the time they turn 70. Initial RMDs are required to be taken once an investor turns 70-and-one-half.

These funds are designed for investors who are nearing this age or older, or will turn age 70 in or within a few years of the applicable fund, and plan to withdraw the value of their investment in the fund over time in accordance with Internal Revenue Service (IRS) rules. For example, a traditional IRA owner who turned 70 ½ in 2015 would select the Simplicity RMD 2015 Fund.

By signing up, Fidelity automatically calculates and distributes the investor’s RMD each year, while monitoring withdrawal activity and assisting with reinvesting or managing spending.

The Fidelity Simplicity RMD Funds with longer time horizons will invest in a greater percentage of equities, while the funds with shorter time horizons will emphasize fixed-income and short-term assets.  

“The foundation of the funds is the glide path, built to balance investment returns and risk in conjunction with an RMD,” says Andrew Dierdorf, portfolio manager on Fidelity’s target date team, including Fidelity Simplicity RMD Funds. “The glide path for the Simplicity RMD Funds has been designed to provide appropriate portfolio diversification over time, while recognizing the unique needs and time horizon for investors who begin taking RMDs at age 70 ½.”

Ken Hevert, senior vice president of Retirement at Fidelity Investments adds, “Retirees often struggle to understand when, which assets, what amount and how to take the annually mandated withdrawal from their tax-deferred retirement accounts. If not done correctly, investors may experience a 50% tax penalty on any amount not withdrawn by the annual deadline.”

“Further, once the RMD has been made, investors find themselves unsure of whether or not they are being too conservative or too aggressive with the remaining investments. The Fidelity Simplicity RMD Funds complement our suite of automatic RMD services, and will provide a simple and innovative solution for investors to help alleviate many of the concerns around taking annual RMDs.”

For more information, visit Fidelity.com.

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