What happens to paid dividends in Fidelity IRA account?

I would think that dividends in an IRA would have to be reinvested in the IRA -- otherwise you would effectively be making a withdrawal from the IRA and might be liable for penalties if you have not yet reached age 59.5.

In an IRA account the dividends are credited to your account (IRA). For MF dividends, they are either reinvested or swept into MMF.

With mutual funds, the default option is usually to reinvest all distributions (both dividends and cap-gains distributions) in the fund. Fidelity (and many other brokerages) will also freely reinvest dividends from individual stocks for you as well, but it's not usually the default behaviour for stocks. If you have a brokerage account (which you must if you have individual stocks there) there's a "cash" account within it - for Fidelity, in an IRA brokerage account, it's usually their cash reserves money market fund (for a taxable account, it could be that or one of their muni money market funds). If you do not have dividends re-invested, they'll usually just get added to your cash account there.

That's more a question of what kind of account it is (ie. mutual fund, brokerage, etc) and what can be done with the cash. For a mutual-fund only account, they'd still probably associate a "cash" account - usually a money market fund - with the other funds.

But, yes, if you have an IRA account and dividends/distributions were not reinvested somehow within the account (ie. to a cash account or reinvested in the fund itself, etc) and instead the account was sending checks to you, they'd all be taxable events, possibly subject to penalties.