How to Transfer Funds from a 401k to a Self-Directed IRA

If you have just discovered the self-directed IRA and were satisfied with a 401k for a long time, don’t worry because this is a very common mistake. Also, it is never too late to make the right decision for the planning of your post-retirement future. Obviously, you have figured out the advantages of having a self-directed IRA rather than a number of 401k accounts.

According to statistics, a rollover of funds from other accounts to a self-directed IRA occurs most often when the investor reaches the age of retirement or is separated from their last job for any reason. A less common reason is that the person receives either cash or assets or both. In this case, only 60 days are given to the investor to complete the rollover.

One of the major advantages of choosing a single self-directed IRA rather than having a number of 401ks set up by ex-employers is an increase in flexibility. Additionally, you will no longer be restricted to the rules and policies defined by your former employer’s retirement plan. By transferring your funds from your current retirement plan to a newly-created self-directed IRA, you will maintain the tax-deferred status of your retirement funds and you will also not be required to pay any taxes on your profits until you withdraw the money.

If you ask your employer-sponsored retirement plan to write a check to fund your new self-directed IRA account, you will be liable to pay 20% of the amount you want transferred in the name of taxes. By requesting a direct rollover to the IRA, you can do away with the withholding tax and also the risk of missing the 60-day deadline.

Regardless of whether you are retiring, switching jobs, or keeping yourself away from work for any other reason, leaving a workplace can be the perfect opportunity to reevaluate where you stand as far as retirement funds are concerned. The process of rolling over to a self-directed IRA can seem like a cumbersome task, but do not be intimidated. It’s literally as simple as 1, 2, 3.

1. Contact your current plan administrator and after getting the distribution packet, fill out the paperwork and select a direct rollover to your new self-directed IRA account holder.

2. If you do not already hold a self-directed IRA account, you’ll have to do that first. That too is quite simple; you just have to follow the instructions in the new IRA opening kit.

3. Come back to the completed forms in the distribution packet of your previous plan administrator and complete the formalities.

The time it typically takes for funds from an employer-sponsored retirement account to a self-directed IRA is 3 to 6 weeks. A rollover from one IRA to another one takes even less time. According to IRS regulations, an individual is entitled to rollover funds from one IRA to another just once in a twelve month period.

To know about 3 Unusual Ideas for Your Self-Directed IRA, Click Here

How to Transfer Funds from a 401k to a Self-Directed IRA