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The Three Stages of Moving IRA Funds to a Self-Directed IRA Custodian

An IRA trustee, also called a custodian, is the institution that administers your IRA. By law, every qualified retirement plan must have a custodian or trustee. A trustee may be a bank, credit union, financial institution, or trust company, such as IRA Financial Trust. IRS regulations require that either a qualified trustee or custodian hold the IRA assets on behalf of the IRA owner. A Self-Directed IRA custodian, also called a passive custodian, allows IRA holders to engage in non-traditional investments (i.e. real estate), but generally does not offer investment advice or serve as a fiduciary.

The first step to establishing a self-directed IRA is opening an account.  The account opening process can be done in minutes and generally involves completing an online application.  The online application will request personal information of the IRA holder as well as information pertaining to the type of IRA ones wishes to establish.  In addition, the IRA holder will be asked to provide a copy of a license as well as an account statement displaying the rollover information.

The second step to establishing a self-directed IRA account is funding the account.  In general, there are two ways to fund a self-directed IRA. The first is via an IRA contribution. The maximum IRA contribution for 2018 is $5500 or $6500 if over the age of 50. The second way to fund in an IRA is via a rollover.  Rollovers can be direct and indirect.  A direct rollover is when retirement funds are moved directly from a retirement account, such as an IRA or a 401(K) plan, to the new IRA.  An indirect rollover occurs when the IRA custodian transfers the retirement funds directly to the IRA holder and not the IRA custodian.  The IRA holder would have sixty (60) days to recontribute the funds to an IRA or other retirement plan.  An indirect rollover can only be done once every twelve months for all your IRAs. So long as the funds are coming from an IRA or qualified retirement plan, such as an IRA, 401(k), 403(b), 457(b), defined benefit plan, etc., the rollover can be done.

The third and final step to establishing a self-directed IRA is also the most fun since it is the step where you get to make the investment.  The Internal Revenue Code does not describe what a self-directed IRA can invest in, only what it cannot invest in. Code Sections 408 & 4975 prohibits Disqualified Persons from engaging in certain types of transactions.  In general, as long as the self-directed IRA does not purchase life insurance, collectibles, or engage in a prohibited transaction outlined in Code Section 4975, then the investment can be made.

The most popular self-directed IRA investments in 2018 have been real estate, cryptocurrencies, hard money loans, and private business investments.

Adam Bergman is the founder of the IRA Financial Group & IRA Financial Trust Company.  For more information on this topic please call 800-472-0646.

Posted in Self-Directed IRA