As you look to your future, sometimes unforeseen circumstances can occur. If you find yourself out of a job, that doesn’t mean you have to leave your 401(k) behind.

In this scenario, one option worth exploring is converting to an Individual Retirement Account (IRA). Thanks to rollover IRAs, you can preserve that lump sum you’ve accumulated from a 401(k) and transfer it to an individual retirement account.

Self-directed IRAs provide additional benefits and flexibility that traditional IRAs don’t offer, such as a more hands-on role in managing your retirement investments and diversifying your portfolio beyond conventional stocks and bonds.

If you want to start an SDIRA with funds you’ve already built, there is a straightforward way to transfer your funds.

Continue reading to learn more about how shifting your 401(k) to a self-directed retirement plan can allow you to explore alternative assets, benefit from tax advantages, and provide a secure nest egg for your future.



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Pros and Cons of an SDIRA


Flexibility. With SDIRAs, account holders enjoy flexibility and can choose investment options beyond traditional stocks and bonds. These options include alternative assets like cryptocurrency, real estate, and precious metals. Greater diversification brings the potential for higher returns.

Tax Advantages. SDIRAs offer several tax advantages, such as tax-free withdrawals during retirement (Roth SDIRA) or tax-deductible contributions (Traditional SDIRAs).

Potential For Higher Returns. Diversifying your portfolio with precious metals, real estate, and other alternative assets can yield higher returns. Traditional index funds returning an average growth of 10% yearly, quick real estate appreciation, or a surging cryptocurrency can boost your balance.


Higher Fees. With SDIRAs, you can expect to pay more fees than traditional IRAs. These fees may include but are not limited to, annual maintenance, transaction, origination, and custodial fees. The amount you pay in fees will depend on your advisor and the types of investments you choose.

Higher Risk. As you diversify your portfolio, you may expose yourself to higher-risk assets. Alternative assets like real estate and precious metals may experience significant fluctuations in value compared to traditional stocks and bonds. We recommend discussing your options with a financial advisor to diversify your SDIRA holdings better.

Less Asset Protection. In the event of bankruptcy or collection proceedings, the assets held within your SDIRA may have a different level of protection than employer-sponsored retirement plans or individual retirement accounts like a Roth IRA. Consider risk management when opening an SDIRA.

Investing in Alternative Assets

While most Traditional and Roth IRAs through bank trusts limit investments to stocks and bonds, SDIRA accounts can take advantage of many other options. Self-directed IRA owners have the perk of exploring several alternative assets, including:

While an SDIRA allows for many investment options, there are limitations. Most collectibles, artwork, and life insurance are considered off-limited by the Internal Revenue Service (IRS). While the IRS doesn’t have a direct list of assets you can invest in, it does have a list that specifically states what you cannot. 

After considering whether or not a self-directed IRA is right for you, you can take the required steps you need to roll over your 401(k).

Rollovers vs. Transfers

Two popular methods of managing self-directed IRA accounts are rollovers and transfers. Each has advantages and disadvantages, with specific rules, pros, cons, and tax implications.

Let’s delve more in-depth into the differences between rollovers and transfers and how each affects your SDIRA:


Rollovers involve moving money from one retirement account to another. If you’ve left your previous job, one common strategy is to roll over your employer-sponsored 401(k) into an SDIRA.

For starters, rolling over your old retirement account to your new SDIRA will not be subject to paying taxes or penalties for early withdrawal by your financial institution. Your tax advantage benefits will continue as long as you contribute money. 

Secondly, consider time limitations. If you complete an indirect rollover, there’s only a short time window to complete the rollover, usually within 60 days of receiving your old 401(k) distribution. Any rollovers outside this window may convert the funds into a taxable distribution.

Lastly, consider the one-year waiting period for indirect rollovers. Avoid penalties and taxes by refraining from performing more than one indirect rollover from one SDIRA to another within 365 days. The whole purpose of SDIRAs is to keep earning uninterrupted tax-free interest for years and decades to come.


Unlike rollovers, transfers move funds from one retirement account to another. There are fewer restrictions, such as 60-day deadlines and no tax consequences.

Moreover, transferring funds from one retirement account to another can help you better manage all your accounts under a single SDIRA. Now, you can view your account activity in one place, potentially resulting in lower administrative fees.

Suppose you are deciding between a rollover or a transfer. In that case, we recommend contacting Horizon Trust or a trusted financial professional to ensure you choose the best option for your retirement goals.

Rolling Over Your Account: Direct and Indirect Rollovers

Rolling over your 401(k) plan to a self-directed account can be a simple task, provided you follow all the necessary steps. After you’ve left your position, if you don’t want to be penalized for moving your funds out of your company 401(k), you can distribute them into a self-directed traditional IRA or Roth IRA directly–granted your 401(k) has a “Roth Bucket.”

Be sure to find an IRS-approved custodian before making the switch, as companies like Horizon Trust can help ease the process and ensure proper compliance to avoid penalties.

At this stage, you’ll choose between a direct or indirect rollover. 

Direct Rollovers

Direct rollovers are the easiest and safest way to move your funds to a self-directed IRA. This is a trustee-to-trustee transfer that avoids any penalty. 

You don’t have to hold on to your funds as you wait for the transaction to occur. Request a statement from your 401(k) admin and put in for a Direct Rollover Certification form. After completing the proper paperwork and due diligence, all that’s left to do is sit back and wait for the changes. This direct trustee-to-trustee rollover is non-taxable and allows for a quick transfer. If you prefer a more hands-on approach, you may want to consider an indirect rollover.

Indirect Rollovers

If you wish to handle your account transfer personally, you can do so with an indirect rollover. While you still need to follow a similar process to a direct rollover, the difference is you are performing the transfer. 

As you pull your money from your 401(k) for the transfer, account holders have a total of 60 business days to transfer the funds to avoid the 10% early withdrawal penalty (if you are under 59½). Any rollover must be pre-approved, and the proper paperwork must be completed to follow through with any transaction without penalty. 

That means that while taking an indirect approach to your rollover, you should still consult a financial professional to help you do things correctly. The penalties associated with not following any of these regulations are significant. 

Step-by-Step Instructions to Rollover a 401(k) into an SDIRA

 If you’re interested in rolling over your 401(k) into an SDIRA, it’s important that you understand the steps that you will need to take. 

1. Choose a Brokerage 

Begin by choosing a brokerage that will hold your account. Even though you are taking a self-directed approach to your retirement savings, you still need a licensed brokerage to hold the account on your behalf. You will perform your transactions through this brokerage. 

Choosing a brokerage that has a history of working with self-directed investors is a great idea, as there are specific rules and regulations that you will be required to follow. 

2. Find a Custodian to Facilitate the Transfer

 Part of choosing the right brokerage to hold the account involves choosing a custodian to open the SDIRA. Many specific forms need to be filed for your SDIRA to be legal, so proper experience is necessary. 

Choose a custodian who has worked with other self-directed investors. Not only does this ensure that your paperwork meets federal guidelines, but it also allows you to receive expert advice from someone who has previously dealt with self-directed retirement accounts. 

3. Act Quickly to Beat the 60-day Window

You must act quickly, as you only have 60 days to invest your funds without suffering any penalization. That is why you should have a plan before beginning the rollover process. 

Paperwork takes time, and forms are only sometimes filed instantly. Having a plan ensures you get everything done before the end of your 60-day window. 

If you’re conducting an indirect transfer, you’ll need to file the paperwork yourself and ensure that it is filed before the 60-day deadline, and you face a steep penalty from the IRS.  

4. Start Investing

 Finally, once everything is filed and ready to go, you can invest your funds in alternate asset classes.

Choose an asset class you know to make more informed decisions before watching your retirement savings grow. 

Taking Control of Your Retirement Plan

 As you prepare for your future, performing your due diligence with any investment matters is crucial. As you take charge of your retirement savings with a self-directed account, follow any regulations the IRS sets. 

Fortunately, Horizon Trust offers the knowledge and expertise you need to facilitate a 401(k) to IRA transfer and help you get started with your new investments. Contact us today to schedule an appointment or speak to a representative to get started on your transfer.

FAQs: Rolling Over a 401(k) to a SDIRA

What is a self-directed IRA?

A Self-Directed Individual Retirement Account (SDIRA) is a retirement account that allows you to invest in a broader range of assets beyond your typical stocks and bonds. These assets may include but are not limited to, real estate, precious metals, and cryptocurrency.

Unlike traditional IRAs, which are restricted by custodian rules, SDIRAs are much more flexible in the types of investments you can choose. However, you must comply with all IRS retirement account rules and regulations to maintain your account’s tax-advantaged status.

In short, an SDIRA is a retirement savings account that gives you greater control over your retirement options. If you want to explore various investment opportunities, an SDIRA is the way to go.

What’s the difference between a transfer and a rollover?

The difference between a transfer and a rollover varies based on the method of moving funds from one account to another, timing, and tax liabilities.

Transfers involve direct movement of funds from one retirement account to another. On the other hand, rollovers begin with a distribution and then transfer the funds into another retirement account. One of the most common types of rollovers is moving funds from a 401(k) into a Roth IRA or traditional IRA.

What fees are common to rollovers?

Four of the most common types of rollover fees are wire transfer fees, account closure fees, tax withholding fees, and consultation/advisor fees.

Are there any tax penalties for rolling over accounts?

Yes, there is the potential for tax penalties when rolling over accounts. For example, you may face an early withdrawal penalty of 10%, plus ordinary income tax, which applies to anyone under 59 1⁄2 who takes a distribution from their SDIRA. This penalty also applies to 401(k)s and traditional IRAs.

Other penalties specific to rolling over accounts include excess contribution penalties and penalties for conducting prohibited transactions within your SDIRA for personal use rather than as a long-term investment.