How to Rollover Your Retirement Funds into a Self-Directed IRA

06 Nov

Moving your retirement funds into a self-directed IRA has a lot of benefits. You have the freedom to invest in a wide range of investment vehicles. If you are wondering how to roll over your funds from an older IRA or a 401(k), this guide can help.

What is a Rollover? 

A rollover is when you move your funds from a qualified retirement account, such as a 401(k), 457, 403(b),or defined benefit, to an IRA. Upon completion of the rollover, you will have more money in your self-directed IRA to invest in whatever you want. One primary benefit of a rollover is that you do not have to pay tax on the money you withdraw from a self-directed IRA. This means you can continue to save money in the tax-deferred state. 

When can you move your existing retirement account to a self-directed IRA?

You can rollover funds to a self-directed IRA from another retirement account in the following situations:

  • You have a 401k or 403b account with your former employer
  • You have a traditional IRA with a brokerage firm/bank
  • You have a Roth IRA with a brokerage firm/bank
  • You have inherited IRAs

Step-By-Step: Rollover Your IRA or Qualified Plan to Self-Directed IRA

1. Contact Your Custodian

Once you have decided to go ahead with the rollover of your 401(k), 403(b), 457, or defined benefits plan, get in touch with your custodian. The custodian will help you with the necessary forms, which you will have to complete and hand them over to the custodian to initiate the rollover. To initiate the transfer request, you may be asked the following information:

  • IRA holder’s name and address
  • The current trustee or custodian name and address
  • Transfer/rollover instructions
  • Asset handling instructions
  • Cash handling instructions
  • Signature
  • Accepting IRA custodian

2. Receive the Check/Wire

Once your account has been set up, your custodian can send funds to your new account by check or wire.

Transfer from Traditional IRA to Self-Directed IRA

An IRA-to-IRA transfer is one of the most common ways of moving funds from one IRA to another. Usually, the transfer is between two different financial organizations, but the transfer can occur between two IRAs handled by the same financial institution.

If the IRA transfer is done correctly, the transfer is neither taxable nor reported to the IRS. In an IRA transfer, the account holder directs the transfer but doesn’t receive the funds. The transaction is completed by the distributing and receiving financial institutions.

Direct Rollover from 401(k) Plan & Qualified Retirement Plan Assets to a Self-Directed IRA

Rolling over qualified retirement plans to an IRA needs a plan trigger. Generally, the plan triggers include termination of the plan, participant leaving the employer or participant reaching the age of 591/2.

In a direct rollover, the retirement funds in an employer-sponsored plan, such as 401(k), are directly moved from one institution to another and then directly deposited into the IRA. Since it’s a direct rollover, the account holder is not in direct possession of the funds, and hence the fund withholding tax is not applied.

Indirect Rollover to a Self-Directed IRA

An indirect rollover is also known as the 60-day rollover. In an indirect rollover, you take possession of your retirement funds before depositing them into an IRA or other retirement account within 60 days. Be mindful of this 60-day rollover rule. However, this rule can be waived off under certain circumstances that prevent you from making the payment.

There is another rulefor indirect rollovers – the one-year rule. This rule prohibits you from makingmore than one indirect rollover in a 12 month period.

Summary

Transfers and rollovers to a Self-Directed IRA are always tax-free and penalty-free if done correctly. Moreover, by rolling over, you’re saving for your retirement, and money continues to grow tax-deferred.

Author Bio:Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, Arizona. He has more than three decades of experience working with investments and retirement planning, and over the last 10 years has turned his focus to self-directed accounts and alternative investments. Rick regularly posts helpful tips and articles on his blog at SD Retirement as well as Business.com, SAP, MoneyForLunch, Biggerpocket, SocialMediaToday and NuWireInvestor. If you need help and guidance with traditional or alternative investments, email him at rick@sdretirementplans.com.

Retirement Funds Image by mohamed ramzee from Pixabay

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