- The need for a self directed IRA rollover
- Traditional Rollover versus Direct Transfer
- Rules Pertaining to Self Directed IRA Rollover
The need for a self directed IRA rollover
A rollover is a transfer of funds from one individual retirement account to another. Mentioned here are some of prominent reasons why a person may experience the need for a self directed IRA rollover:
- Unhappy with the current account – If you are currently invested in a retirement account but are unhappy with the returns, and would like to assume active control of your portfolio by setting up a self directed IRA, you may rollover funds from your existing IRA or pension account to the new self directed IRA.
- Inheritance – If you have inherited an IRA from your spouse, you can roll the funds over to your own IRA.
- Need wider investment options – If you are one of those who have the knowledge and skill of investing in a wide array of asset, but so far due to time constraints, have invested in a traditional IRA or an employer sponsored plan and if you think you have the time and resources available to you now, you may think of rolling over the funds from your existing account to a self directed IRA.
Traditional Rollover versus Direct Transfer
A rollover to a self directed IRA may be executed as a direct transfer or as a traditional rollover.
- Traditional Rollover – In case of a traditional rollover, the money withdrawn from the existing IRA passes through the investor before it is transferred to the new IRA account. The investor would receive a check for the fund value and he has to make sure that he completely transfers the fund to the new IRA within 60 days. When executing a rollover, you will be asked if you wish taxes to be withheld. The current custodian does not know what your plans are. If you instruct them to not withhold taxes, they won’t. It becomes extremely important to fund the new IRA for the exact amount and within 60 days. The current custodian will let the IRS know a distribution has taken place but the receiving custodian will also report they received the funds.
- Direct Transfer – The direct transfer procedure bypasses the investor and is very easy and hassle free. The money is directly transferred from existing IRA to the new self directed IRA. No withholding tax would apply in case of a direct transfer and this happens in no time.
IRA rollover rules:
- You can also do a partial rollover if you desire – If you do not want to do a complete transfer of your funds from your existing IRA to the new self directed IRA account, you can do that as well.
- There is a restriction to the number of traditional rollovers – In a year’s time frame, you may execute only a single rollover from a given IRA account. However this restriction does not apply to direct transfers. Most people think rollovers and transfers are the same – they are not and can create an unfortunate taxable distribution if used incorrectly.
At Self-Directed Retirement Plans, we help clients in setting up their new self directed IRA account. We also offer assistance in rollover of funds to the new self directed IRA through traditional rollover as well as direct transfer method.