Transitioning IRA and old 401(k) to Self-Directed IRA

[Nathan Yee]

Hello BP Community,

I'm looking clarify the following questions:

What would the tax/penalties (if applicable) be for rolling over 1) my ROTH IRA and 2) my old, traditional employer 401(k) into a Self-Directed ROTH IRA? What are my max contribution limits? (I'm under 59 1/2 years old). 

Based on my research, I'm currently thinking that there are no tax/penalties for a ROTH IRA rollover and you'd pay ordinary income tax (via 1099), but with no penalties for a traditional 401(k) to Self-Directed ROTH IRA conversion. As far as max contribution limits, I'm under the impression the max amount I can contribute is $5500 (2017) and that this contribution would be across all ROTH retirement accounts.

Lastly, if I qualify later in life for a Solo-401(k), can I convert an existing Self-Directed ROTH IRA to a Solo-401(k)?

Based on my research, I'm thinking I don't qualify based on IRS rules: 

https://www.irs.gov/pub/irs-tege/rollover_chart.pd...

Background:

I'm looking to set up a Self-Directed ROTH IRA for the following reasons: 1) I believe I'll be in a higher tax bracket later in life and 2) I'm focusing on investing in large MF syndication deals as a limited partner. Although I love the benefits of a Solo 401(k), I don't qualify to set one up - I'm currently a W2 with no additional sources of income. The Self-Directed IRA seems to be the next best thing.

I appreciate everyone's help/input on this!

-Nate

[Dmitriy Fomichenko]

Nathan,

There are no tax or penalties for transferring Roth IRA into Self-directed Roth IRA. Your employer 401k however can not be transferred directed to a Roth IRA. Those funds are pre-tax and Roth IRA is post tax. You have to do it in two steps:

1) Rollover your 401k into Traditional IRA (pre-tax to pre-tax). If your 401k is with the past employer you should have no problems doing this. However if you have a 401k with the current employer most likely they will not allow you to rollover those funds while you are employer there.

2) The second step is to do the Roth conversion - converting your Traditional IRA into a Roth. There are no penalties to do so but the amount of conversion will be taxable event. You are correct - the custodian will issue a 1099 to you reporting that as an income to you in the year of conversion.

After you complete those two steps above you will be able to do a transfer of your Roth IRA into Self-directed Roth IRA.