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Rules for IRA Holders & The Types of Accounts That Can Be Converted into a Self Directed Account

Top IRA Questions Answered

We are wrapping up our series on your freedom to invest with a review and a Q&A. There may still be a few questions that we haven’t discussed. If you have any questions, then please opens in a new windowcontact us so either if we can address your question directly or depending on your particular situation we can point you in the right direction. 

The Video Highlight Reel

[0:28 – Can I self direct my current IRA at a brokerage firm?]
[0:49 – How can I diversify my IRA investments? Is it recommended?]
[1:02 – Can I self direct a Roth, a Simple, or a SEP IRA?]
[1:36 – What are the differences between a Roth, SEP, and Simple IRA?]
[2:06 – Can I self direct my health savings account or my 401K for my self-employed business?]
[2:17 – Sunwest Trust does not handle health savings accounts, why?]
[3:05 – What does a “solo” or “individual” 401K do?]
[3:31 – Terry finishes answering the questions about self directed IRAs, and gives contact information for anyone with more questions.]

Perhaps, you are in the process of either transferring or rolling over your IRA(s) or 401k, and now you want to know how to create a self-directed IRA or 401k, or what the best self-directed Roth IRA or 401k is for you.

First, you need to know which accounts you are allowed to self-direct.

There are opens in a new windowsafeguards in place for those wishing to make their own choices when it comes to investing their hard-earned money, but while there are opens in a new windowcertain risks in directing your accounts, the returns can be rewarding when you know what you’re doing. A self-directed Roth IRA (Individual Retirement Arrangement), SEP (Simplified Employee Pension), SIMPLE (Savings Incentive Match Plan for Employees), or self-employed 401k is a type of individual retirement account that usually contains investments in stocks and bonds, notes, real estate, bullion, etc. Being in charge of your IRAs gives you full control as to where those investments are directed.

Can I self direct an IRA at the brokerage firm?

Yes, when you move all or some of that IRA to Sunwest Trust, we will help you set up one or more self-directed Roth, SEP, SIMPLE, or self-employed 401k accounts. Although it is up to you, we actually do not recommend moving all of your money into a self-directed IRA, because sometimes your investments with your current brokerage can be lucrative, and by leaving some funds behind in a brokerage it can further help diversify your portfolio (depending on your financial goals). Sunwest Trust acts as your custodian; we hold your assets and administrative records on your behalf, but you call the shots.

Can I self direct a ROTH, a SIMPLE or a SEP IRA?

All of the above accounts are versions of IRAs, so yes, you can self direct them. Stocks, bonds, mutual funds, loans—all of these are possible investments you can make. Certain types of investments are forbidden by the IRS, mostly related to whether or not they are personally beneficial, but most standard investments, including tangible assets, are allowed.

You can also have checkbook control of your IRA, and as long as you follow the IRS rules for a self-directed IRA, Sunwest Trust can easily help you set up your account and advise you as to all your options (such as a 401k rollover to a self-directed Roth IRA, converting a Roth to a Roth self-directed IRA, real estate self-directed Roth IRAs, etc).

Keep in mind that when you move from a post-tax arrangement, such as an IRA or 401k, to a pre-tax arrangement, such as with a Roth, there will be tax consequences. What those will depend on a lot of factors: your age, a number of funds you want to convert, your current financial situation, your goals, etc.

Therefore, make sure that if you choose this route, you will need to contact a tax professional to discuss your specific tax liability and to ensure this type of transition is right for you. If you fail to follow/know the tax code, then you could wind up in a precarious tax situation that you could either have mitigated or avoided altogether beforehand, assuming that you made an effort to do due diligence.

Let me iterate: You cannot depend on an IRA custodian, such as Sunwest Trust, for this type of advice. We are not a brokerage firm, we do not employ licensed financial advisors, and we do not sell financial products. We offer self directed IRA services, but the services are entirely directed by you!

Can I self direct my health savings account?

Yes, you can, but we (at Sunwest Trust) don’t handle HSA self-directed brokerage accounts, for a number of reasons. There are stricter limits as to the amount of money that can be contributed to HSAs on an annual basis. For example, the current contribution limit for an HSA is $3,300 for individual coverage and $6,550 for family coverage in 2014. (Individuals age 55 and over may continue to contribute $1,000 more as a “catch up” contribution.) In addition, unlike 401ks and IRAs—which you have to wait until the age of 59 1/2 to touch personally—HSA accounts are tapped earlier on, which further leaves these accounts with even less money with which to make alternative investments.

Because of the reality of these two points, HSA accounts are usually smaller than IRAs and 401ks. Since they are smaller, it means they are even further limited as to where they can be invested. Therefore, we don’t handle them; however, there are other self-directed IRA custodians who do. For prospective clients who would like to self direct their HSAs, we can refer you to another company for that purpose.

Can I self direct my 401k from my self-employed business?

The 401k account is a prime opportunity for use as an investment vehicle—franchises, tax liens, house flipping, business investments—which can give back a satisfactorily high rate of return if you are a savvy investor. It can also help reduce your yearly tax payments if you make regular contributions, opens in a new windowas can all of your self-directed IRA accounts. If you have any questions about which type of self-directed IRA account is best for you, then we suggest you speak with a tax attorney or a CPA.

Key Takeaways:

– You can transfer or roll over some or all of your retirement accounts—ROTH, SEP, SIMPLE, or self-employed 401k—to a self-directed custodian firm.
– You are free to self direct all investments made with your IRA funds.
– Savvy investors can get a high rate of return with self-directed IRAs.

Help us and ‘Tweet’ these tips to your friends and spread the word about self directed accounts.

Types of retirement accounts that you can self direct. ( opens in a new windowTweet now)
With a solo 401k, you can act as your own trustee and have checkbook control of your retirement account. ( opens in a new windowTweet your friends now to show them how smart you are)
You can self directed a ROTH, a SIMPLE or a SEP IRA. ( opens in a new windowTweet away, click here)
HSAs can be self directed to purchase alternative assets. However, Sunwest Trust does not handle HSAs specifically. ( opens in a new windowMouse over link and Tweet)
Before opening a self directed IRA, get the facts and speak with credible a tax person. ( opens in a new windowBe a hero to your tweeps and Tweet)

Summary of Recommended Resources:

opens in a new windowU.S. Securities and Exchange Commission Investor Alert: Self-Directed IRAs and the Risk of Fraud

opens in a new windowFox Business Interested in a Self-Directed IRA? You Better Know Your Stuff

opens in a new windowJournal of Accountancy The Dos and Don’ts of IRA Investing: Some investments work better than others.

opens in a new windowKiplinger Why You Need a Roth IRA

opens in a new windowSterling Administration Health IRS Announces 2015 HSA Limits

Full Video Transcript

Rules for Self Directed IRA: Can I Self Directed a Roth, SEP, SIMPLE, Self Employed 401k or HSA?

In the last three videos that we have done, we picked out some questions to review to make sure that I was clear on how to do the certain things.

The first one is, “Can I self direct my current IRA at the brokerage firm?”. In other words, you have an IRA at a brokerage firm and you want to self direct it. The answer to that question is Yes. You can move all or a portion of that IRA to some Sunwest Trust and start self-directing that portion. The IRS will allow you as many IRAs as you want, so it’s not a problem to have more than one. I actually recommend that you don’t put all your eggs in one basket. Don’t move all the money to Sunwest Trust, but leave some with your brokerage in stocks and bonds because that can sometimes do very well from you.

Next question is, “Can I self direct a ROTH, a SIMPLE or a SEP IRA?”. The answer to all three of those is Yes. A ROTH is just another type of IRA. You have a traditional, which means that the money that goes into that is pre-tax dollars. In most cases, the ROTH, the money that goes into a ROTH is after-tax dollars. The income and the ROTH IRA account can be tax-free. The SEP and the SIMPLE are also forms of IRAs that typically involve businesses. You may work for a business that has a SIMPLE, or you may be a business owner who started a SIMPLE or SEP for the reason that they are a little less expensive probably for a 401k or a little easier to administer. But all three of those types of accounts can be self-directed and you can invest those in anything the IRA does not prohibit.

The last question is: “Can I self direct my health savings account or my 401k from my self-employed business?”. The answer to both of those again is Yes. The health savings account is not something the Sunwest trust handles. The reason we don’t is we feel like those are probably be used a little more often. Those accounts are created to supplement your health insurance. If ever you have a particular type of health insurance, you can have an HSA, a health savings account. We feel like the contributions to those are lower and the amount of money that you can build up probably would not be as large or may not be as viable to self-direct. However, there are companies out there like Sunwest Trust. They will self direct health savings account. So, it can be done, but it is not just something we do here at Sunwest.

And, the other question is the 401k, which is If you are self-employed with no employees, you can have what is called as Solo or what we call it as an Individual 401k or an i401k. With an i401k, not only can you self direct it, but also you can act as your own trustee. You can actually have checkbook control of your 401k.

Those are all good questions and I hope we have answered those questions for you well. If you have other questions, feel free to email us or call our office. Interested in more information? You may also go to opens in a new windowour YouTube channel. We have over 120 videos with lots of great information. Thank you for reading.

Terry White

About Terry White

I started my business career after getting my degree in Accounting from the University of New Mexico in 1983. My first job was as a controller for a local title company, and in 1987 I started First Financial Escrow, Inc. Over the years I played a part in several startup companies including First Financial Equities, Inc., First Financial Trust, Inc., First Financial Marketing, Inc. and Asset Ventures, Inc. In 1997 First Financial Escrow, Inc. was able to purchase the escrow accounts from Sunwest Bank and changed its name to Sunwest Escrow. As the market changes, Sunwest has grown and changed along with it. Besides my wife, Sheila, we have three boys, two daughters-in-law, one grandson, another grandson on the way and a future daughter-in-law. Sunwest is my passion, and I enjoy coming to work every day to see what will happen next. I enjoy fly fishing, spending time in Colorado, biking and watching my boys play soccer.