How to roll over an existing retirement account to a self-directed IRA

Self-directed IRAs offer many benefits, such as access to a wider range of investment options and greater control over asset allocation. By moving your existing account to one of these plans, you can maximize the growth of your retirement funds by selecting investments that offer the highest tax efficiency and returns.

You can transfer or roll over funds to a self-directed IRA from another retirement account in specific situations:

401k or 403b account with a former employer

Employer-sponsored 401k or 403b plans offer significant tax benefits and have higher contribution limits than IRAs. Max out these plans to take advantage of matching contributions while working, and roll over to a self-directed IRA with checkbook control after you leave the job.

To avoid taxes and early withdrawal penalties, make sure the withdrawal is designated as a rollover and choose the right IRA type. Rollover your 403b or traditional 401k plan to a self-directed traditional IRA, and pick a self-directed Roth IRA for an existing Roth 401k plan.

Traditional IRA with a brokerage firm/bank

If you are interested in using self-directed IRA accounts, you can perform a direct or indirect rollover with a traditional IRA. For a direct rollover, funds are directly transferred or a check is made out from your existing plan to the new IRA.

A direct rollover is possible if funds are directly transferred or a check is made out from your existing plan to the new IRA. (Source)

In case of an indirect or 60-day rollover, funds from your existing plan are distributed to you, and you need to deposit them into your self directed IRA within 60 days. A percentage of the amount may be withheld as tax, which you can recover while filing tax returns. However, you need to add this amount while making the deposit.

Roth IRA with a brokerage firm/bank

Existing Roth IRA plans can be moved to self-directed Roth IRAs the same way as a traditional IRA, and will not incur taxes and penalties if they’re handled correctly.

To ensure that these transactions remain tax-free and penalty-free, opt for a direct rollover or transfer from one account to the other. This way, you are not directly receiving the assets from your existing retirement account, so it will not count as an early withdrawal.

Inherited IRAs

If you have an inherited an IRA from a spouse, you can treat the account as your own or roll funds over to your self-directed retirement account.

With non-spouse IRAs, you have two options. You could take full distribution of the account, paying income tax on the funds, or have the plan retitled as an ‘inherited IRA’. For retirement accounts inherited from anyone other than a spouse, you can roll over to a self-directed IRA only if the inherited IRA has been characterized correctly.

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DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.