How to transfer/open self-directed IRA account?

Question

Hello BP,

I am interested in switching my 401K over to a self-directed IRA. Does anyone on BP know how this process works?

Carl Fischer · Answer

@Bryan Pham

Edmund got the basics correct, but in order to move funds from a 401(k) to an IRA, you are going to need to rollover the money. You can send the money directly to your new custodian, which is the easiest way to rollover funds.

Here is a quick sequence of how a rollover goes

1. Open a self-directed IRA

2. Using your new account number, contact your 401(k) provider and tell them you would like to rollover the funds

3. They may need mailing directions for the new IRA, such as who to write the check out to, and their mailing address. (In some instances, they will need a letter of acceptance from the IRA custodian/administrator)

4. Most SDIRA custodian/ administrators will require you to fill out a form to allow them to deposit the money into your IRA.

5. Once you have the money in your account, you are able to go ahead and make an investment of your selection.

If you have any additional questions, please feel free to connect or ask me any questions.

Thank you

Carl Fischer

Edmund Ricker · Answer

@Bryan Pham

This process is fairly simple but can vary slightly based on what you will be investing in.

The basics go like this:

1.  Open a SDIRA with a custodian who handles these matters.

2.  Fill out paperwork to transfer funds from 401k to SDIRA.

3.  Once funds are received by custodian, fill out paperwork to direct them to divert funds to the investment vehicle of choice.

I am assuming the 401k you are talking about is with a former employer, because if it is with your current employer then often they cannot be moved.

This is a simplistic view, but I hope it gives you an idea of the process.

I am in the middle of setting up my own SDIRA and it has been pretty easy.

Ed

Carl Fischer · Answer

@Bryan Pham

We are a SDIRA administrator, but out of respect for bigger pockets we don't want to blow our own horn. Below are 3 things to consider when selecting a custodian/administrator for a self-directed IRA.

1. Knowledge (They actually know what they are talking about)

2. Customer service (can you reach a person, how quickly?)

3. Ease of transactions

If you have any questions or would like to connect, please feel free to send me a message.

Thank you

Carl Fischer

Mark Nolan · Answer

@Bryan Pham

Also, if you are self-employed you may want to explore the solo 401k, or even the LLC IRA if you want to cut down on IRA custodian fees.

Following are the similarities and differences between the solo 401k and the self-directed IRA.

The Self-Directed IRA and Solo 401k Similarities

• Both were created by congress for individuals to save for retirement;
• Both may be invested in alternative investments such as real estate, precious metals tax liens, promissory notes, private company shares, and stocks and mutual funds, to name a few;
• Both allow for Roth contributions;
• Both are subject to prohibited transaction rules;
• Both are subject to federal taxes at time of distribution;
• Both allow for checkbook control for placing alternative investments;
• Both may be invested in annuities;
• Both are protected from creditors;
• Both allow for nondeductible contributions;
• Both are prohibited from investing in assets listed under I.R.C. 408(m); and
• Neither may be invested in your own business.

The Self-Directed IRA and Solo 401k Differences

• In order to open a solo 401k, self-employment, whether on a part-time or full-time basis, is required;
• To open a self-directed IRA, self-employment income is not required;
• In order to gain IRA checkbook control over the self-directed IRA funds, a limited liability company (IRA LLC) must be utilized;
• The solo 401k allows for checkbook control from the onset;
• The solo 401k allows for personal loan known as a solo 401k loan;
• It is prohibited to borrow from your IRA;
• The Solo 401k may be invested in life insurance;
• The self-directed IRA may not be invested in life insurance;
• The solo 401k allow for high contribution amounts (for 2016, the solo 401k contribution limit is $53,000, whereas the self-directed IRA contribution limit is $5,500);
• The solo 401k business owner can serve as trustee of the solo 401k;
• The self-directed IRA participant/owner may not serve as trustee or custodian of her IRA; instead, a trust company or bank institution is required;
• When distributions commence from the solo 401k a mandatory 20% of federal taxes must be withheld from each distribution and submitted electronically to the IRS by the 15th of the month following the date of each distribution;
• Rollovers and/or transfers from IRAs or qualified plans (e.g., former employer 401k) to a solo 401k are not reported on Form 5498, but rather on Form 5500-EZ, but only if the air market value of the solo 401k exceeds $250K as of the end of the plan year (generally 12/31);
• When funds are rolled over or transferred from an IRA or 401k to a self-directed IRA, the amount deposited into the self-directed IRA is reported on Form 5498 by the receiving self-directed IRA custodian by May of the year following the rollover/transfer.
• Rollovers (provided the 60 day rollover window is satisfied) from an IRA to a Solo 401k or self-directed IRA are reported on lines 15a and 15b of Form 1040;
• Pre-tax IRA contributions on reported on line 32 of Form 1040;
• Pre-tax solo 401k contributions are reported on line 28 of Form 1040;
• Roth solo 401k funds are subject to RMDs;
• A Roth 401k may be transferred to a Roth IRA (Note that from a planning perspective, it may be advantageous to transfer Roth Solo 401k funds to a Roth IRA before turning age 70 ½ in order to escape the Roth RMD requirement applicable to Roth 401k contributions including Roth Solo 401k contributions and earnings.);
• Roth IRA funds are not subject to requirement minimum distributions (RMDs);
• The fair market value (FMV) of assets held in a self-directed IRA is reported on form 5498;
• The fair market value of assets held in a solo 401k are reported on Form 5500-EZ;
• At termination, the solo 401k is required to file a final Form 5500-EZ and 1099-R; and
• At termination, the self-directed IRA is only required to file a form 1099-R.

Edmund Ricker · Answer

@Carl Fischer, Thanks for such a smooth transaction on my SDIRA that Camaplan is helping me with.

Ed

Bryan Pham · Answer

Thank you @Edmund Ricker, @Carl Fischer and @Joe Homs for all your advice. Was there a specific Self directed IRA company that any of you guys can recommend?

How to transfer/open self-directed IRA account?

Most Popular Reply