How to Transfer a 401(k) Into a Self Directed IRA
Direct transfers (commonly referred to as trustee-to-trustee rollover) allow you to move your 401(k) assets directly into a self-directed IRA without ever taking possession of them, bypassing tax withholding that would normally occur upon distribution and thus avoiding 20% withholding for taxes that would normally apply if taken directly.
SDIRAs give you the flexibility to invest in alternative investments such as real estate and private equity – but before taking this step it’s essential that you understand all of its rules.
How to Transfer a 401k
Rollover into a self-directed IRA is the easiest and most efficient way to move a retirement account, whether through direct transfer or indirect rollover.
Direct transfers (or trustee-to-trustee transfers), are the ideal method for maintaining tax deferral and avoiding mandatory 20% withholding when taking distributions from an old 401(k).
To complete a direct transfer, your plan administrator should issue a check payable to your new IRA custodian, and marked “FBO “your name.” Have them send it directly back to you for deposit; once done, your retirement funds can now be invested as per their new custodian’s rules (except life insurance and collectibles which may not).
An indirect rollover occurs when you personally take control of a distribution from a 401(k) plan, then deposit them within 60 days into an IRA or self-directed IRA – failing which, you will incur taxation and penalties as early withdrawal on those assets. You are limited to performing one indirect rollover each year; please consult a qualified tax professional before undertaking this action.
Reclaiming control of your retirement savings by switching from a traditional 401(k) to a self-directed IRA is an exciting step towards investing in real estate, private businesses and precious metals. For the best experience and compliance purposes, Horizon Trust offers IRS-approved custodianship for self-directed IRAs; let them guide the process easily and help avoid penalties! Contact them now for an appointment or speak with a representative to get started!
Direct Rollover
Direct rollover is an efficient and straightforward method for moving 401(k) funds from an old employer’s retirement account to your new self-directed IRA. To complete one, the Plan Administrator of your previous employer may require completion of specific forms to have funds released or wired directly from their financial institution to the tax-advantaged account into which you’re rolling over. Furthermore, an IRA custodian who accepts rollover will need to open it with any applicable fees associated with this process and payment of applicable costs related to opening your new IRA will need to take place as part of this process.
Your IRA custodian will assist with filing the necessary paperwork with your former employer’s financial institution and will file it directly on your behalf with their new brokerage firm – often known as trustee-to-trustee transfer or direct rollover – thereby eliminating any potential tax consequences of an IRA transfer.
Direct rollovers do not fall under the same restrictions as taxable distributions, which must be completed within 60 days and can incur an early withdrawal penalty of 10% if you are under age 59 1/2. However, one indirect rollover per year is permitted; thus it’s essential that you consult with a knowledgeable advisor familiar with IRA regulations to maximize your returns.
Professionals such as Certified IRA Services Professionals (CISP) can also assist you in choosing an IRA custodian best suited to your investment goals and conduct the requisite due diligence necessary to comply with IRS regulations. In doing so, this will reduce risks while optimizing the returns from your self-directed IRA account.
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