Self-Directed IRA Expert: Horizon Trust BlogMay 17, 2019by horizontrustSelf-Directed IRA Rollover: What Does this Mean?

An IRA rollover is combining two IRA accounts into one convenient place. It’s tax-free if the transfer is made from one IRA to another.

What is a Self-Directed IRA Rollover?

Planning for retirement can be a tricky business, especially if you have more than one account. Whether it is a traditional IRA from former employers or a plan through a trust, having your funds spread out can make it difficult to keep track of your savings. If you want to condense your open IRAs into a single account, it is possible with a self-directed IRA rollover. By rolling over your accounts, you can have all your retirement savings in one convenient place.

What is a Self-Directed IRA?

A self-directed IRA can be either a traditional or Roth IRA that offers more possibilities than the typical options. While SDIRA account holders get the benefit of tax-advantaged retirement savings, additionally they have the option of alternative investments and can build more diverse portfolios. You get to decide where you put your money and, with the help of a certified IRA custodian, you can build your retirement savings.

All About IRA Rollovers

IRA-to-IRA rollover happens when an account holder takes the distribution from one account and deposits the funds or assets into the second account. Essentially, a rollover is combining two accounts into one convenient place.

There are two types of rollovers: direct and indirect. The simplest of the two is the direct rollover. The direct rollover, or the trustee-to-trustee rollover, occurs when the funds are transferred from one trustee to another. The IRS is alerted of this transfer, but you do not owe any taxes. Since you are not withdrawing your funds for use, there’s no need to pay the tax or receive a penalty.

If you decide to do an indirect transfer, the steps are a bit different. Account holders take the IRA distribution in their possession and deposit their funds into the same type of IRA. However, this transfer must take place within 60 days after the withdrawal. This must be taken care of before the deadline if you want to avoid any penalty.

In either case, returning funds to the same kind of IRA avoids tax on the distribution and the 10% penalty tax.

How do you do it?

The process to roll over your IRA to a self-directed account is very easy provided you take care of the steps in a reasonable time:

  • First, open a self-directed IRA
  • Contact your previous employer to see what paperwork you need
  • Obtain the paperwork and information for the IRA you want to roll over into your self-directed account.
  • Complete it and ask the plan administrator to start the process
  • Follow up with steps using trustee-to-trustee or an indirect transfer.
  • If you are doing an indirect transfer, be sure to roll over your funds into your SDIRA within 60 days.

Once you’ve completed the process, feel free to select your investments and start expanding your diverse retirement portfolio.

The Simple Facts

There is no age restriction on rollovers. However, if you have a traditional IRA and are age 70 ½ or older, you cannot roll over your RMD. The first assets or funds distributed in a year are the RMD. After the RMD, any additional distributions are eligible for rollover following the 12-month period rule.

Your IRA rollover takes cash or assets from one IRA and moves it into the other. It’s tax-free if the transfer is made from one IRA to another. This transfer must be made by the 60th day after the day you receive the distribution from your other IRA. The day following the day of receipt is considered day one.

When setting up your transfer, it’s safest to go by calendar days rather than business days. If your transfer is not complete within the 60 days, then you must report it on your taxes.

Self Directed IRA Free Guide

Rolling Over Your IRA

After rolling over your account, be sure you have a 1099-tax form for the distribution. If you successfully rollover your funds in the allotted time, you don’t have to worry about the taxes or penalties. The institution reports the rollover by using a 5498 form. If you transfer any less than the original amount from one IRA to your SDIRA, that amount needs to be reported.

Once you’ve completed the transfer, inform your IRA custodian. Once starting or completing the process, it cannot be undone. Be sure to perform your due diligence and decide if you truly want to roll over your IRA. Additionally, you are only allowed one rollover every 12 months. If you don’t want to roll over the full amount, it is possible to do a partial rollover. Just follow the process and record the proper amounts.

Performing Due Diligence

Consolidating your IRA funds doesn’t have to be a hassle. By following these simple steps, you can successfully transfer your funds into your self-directed IRA. As always, perform your due diligence before making any financial decisions. Weigh your options and decide if a transfer is right for your financial future. Take control of your retirement and take advantage of self-directed retirement savings today. For more information, contact a trusted Horizon Trust custodian today.