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.
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.
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.
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.
How injecting trillions into the economy may favor Bitcoin
Bitcoin has had a 25% drop in the last 30 days. However, the cryptocurrency may be on a very positive...
The corona crisis increases demand for loan via Fintech platforms
The Brazilian Fintech sector is developing in the light of the new coronavirus pandemic. A large number of companies now...
3 business intelligence trends to watch for in 2020
The Business Intelligence (BI) market will reach $40 billion by 2025, according to Research and Markets. The world economy is...
Agreement on the prices of medical cannabis in Germany
The costs for the health insurance companies in Germany, due to the drug price regulation, experienced a 100% increase. After...
The tourism sector in Spain asks the government for real help
The tourism sector has already practically lost the summer and expects that recovery will be much slower than previously estimated....
Featured5 days ago
The pandemic is just the trigger of an inevitable recession
Africa6 days ago
Angola might devalue the kwanza, as the country’s economy is threatened
Featured5 days ago
The winners of the Online F10 FinTech Hackathon 2020
Business6 days ago
Real estate is at risk because of the exogenous crisis caused by COVID-19