There are several distinct types accounts from which you can transfer into a self-directed IRA. It should be noted that every IRA is self-directed, but the custodian can decide where you can invest.
Existing IRA To IRA Transfer
The first and most obvious one would be if you have an IRA at a brokerage house. If you are with one of the big brokerage houses, then they will most likely not allow you to invest your IRA in real estate, gold or private companies. In that case, you can transfer part of the money from your existing IRA a brokerage house into a self-directed IRA, but you do not have to transfer the entire account. The IRS does not place any stipulations on how many IRAs you can manage, and you can have as many IRAs as you can keep track of. You can maintain that existing IRA at a brokerage house, and transfer a portion of that money over to a self-directed IRA, . We will talk about the mechanics of that in just a second.
Transferring a Simple to a Self-Directed IRA
The next place from which you could transfer money would be if you worked for a company that had a Simple plan. This is a way for a small company to help you contribute to your IRA retirement plan. In this plan, you make a contribution, and the employer makes a matching contribution of up to 3% to what you contributed, or 3% of your salary. If you put in 3%, then the employer would put in 3%.
You can also transfer from a Simple plan to a self-directed IRA. The only caveat here is you have to have been in the Simple plan for at least two years. Once you’ve been there two years, then you can transfer money out of that Simple plan into a self-directed account and start investing according to what that new custodian will allow you to do.
You can keep your Simple plan going if you remain with that employer and you are still making contributions, that’s fine. At the same time you keep that going, you can also transfer some or all of its contents to a self-directed IRA.
Next is a SEP plan. There are not a lot of SEPs on the market, but they are basically just a traditional IRA with differing contribution limits. Therefore, you can also transfer that money into a self-directed IRA. A portion of it can be transferred to a self-directed IRA, and you can use that money to invest in things other than the mutual funds that you are allowed in the SEP.
Finally, the last place from which you might want to transfer money is a 401(k). That’s kind of tricky, because the only way that you can move a 401(k) into an IRA is if you are no longer employed with the company with which you had the 401(k) . In that case, you would move the entire 401(k) into an IRA. The other option is if the plan administrator for your 401(k) offers what’s called an In-Service Distribution, then you can take a part of that money out of the 401(k) and move it into an IRA at a self-directed custodian, if that’s what you choose to do.
Those are the four places from which you can move money from into a self-directed IRA. The next question is: how do you do that? First, you would need to set up an account with whatever custodian you plan on using. Hopefully that will be Sunwest Trust. Along with your account setup information, they will give you a transfer form. Simply fill out that transfer form and put in the dollar amount that you want to transfer. If you have money in stocks and bonds at your existing custodian, then you would tell them to liquidate those assets first and transfer cash over to the new custodian, which could make the investment that you want to make from there. That process works well for the IRA, the Simple plan, or the SEP.
With a 401(k) plan, if the plan administrator will allow for In-Service Distributions, then you would need to request that your plan administrator make a direct rollover into an IRA. The paperwork works differently from all the other plans I previously just told you about. You will need to request an In-Service Distribution form from your employer’s plan administrator and fill it out; then they will send the money to the custodian. In the other three cases, you fill out the transfer form that we provide you and we send that to the existing custodian, which will transfer then the money over to us.
That is how you can transfer a part of your money from an existing IRA into a self-directed IRA, while maintaining both IRAs simultaneously. Keep in mind, though, that that you will have to pay separate fees to both or multiple custodians, if you decide to split up your IRAs.
You do not have to transfer the entire IRA to a self-directed custodian. You could still keep some money in stocks and bonds if you are happy, while taking advantage of the opportunity that a truly self-directed account offers you to invest in just anything other than life insurance and collectibles.
Hopefully this has helped you answer your questions.
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