Common Self-Directed IRA Rollover Mistakes

The vast majority of Self-Directed IRA transactions, including purchases, sales, transfers and rollovers, happen without a hitch. But there are a few pitfalls Self-Directed IRA owners should be aware of. The rules aren’t complicated, but if you don’t know the rules at all, you could wind up in hot water with the IRS and wind up paying needless taxes and penalties.

Here are some of the most common Self-Directed IRA rollover mistakes, and how to avoid them.

  • Taking possession of rollover funds directly. Sometimes this isn’t a mistake. It’s not illegal to take a distribution from an IRA and then invest it yourself in some other qualified account, including another IRA, a Self-Directed IRA or 401(k). You just have to complete the transfer within 60 days, or the IRS will determine the transaction to be a distribution, and charge income taxes (unless the account you took the distribution from is a Roth account) and possible early withdrawal penalties. This would trigger applicable state taxes as well.

But too often well-meaning people who have every intention of completing the transaction within the 60 day window get distracted, or find that a deal has fallen through, and wind up facing unwanted taxes and penalties.

For this reason, unless there’s a specific need for the money for the next 60 days, and not beyond that, it’s almost always preferable to execute a rollover via a trustee-to-trustee transfer. That is, the money gets wired directly from one investment company or custodian to the next, and never enters your hands.

There are some exceptions to this rule, such as those involving hardships or the first-time purchase of a home. If you have questions about these rules, call American IRA, LLC at 866-7500-IRA(472).

  • Trying to rollover RMDs. You can make rollovers from one tax-deferred IRA, including Self-Directed IRAs at any age without tax consequence. But if you are over the age of 70 ½, you cannot attempt to roll over your annual RMD, or required minimum distribution. If you do, the IRS would count that rollover as an excess contribution and charge penalties until you correct it.

If you are subject to required minimum distributions, make sure to subtract this year’s RMD requirement from any IRAs you’re planning on rolling over before you make the transaction.

  • Violating the ‘Same Property’ Rule.’ If you withdraw cash or other assets from an IRA and want to roll those assets over into a new account, you have to roll the same asset into the new account that you took out of the old one. That is, you cannot take cash out of an old 401(k), buy a property with it, and then try to roll the property into the new Self-Directed IRA. If you take cash out, cash has to go back in to the new IRA account. If you take out stock, the same stock has to go back in.
  • Blowing the One-Year Waiting Rule. This is a fairly recent consideration: If you distribute assets from an IRA and roll over any part of the amount you distribute, you cannot execute a rollover of any other IRA without facing potential tax ramifications. Basically, the IRS imposes a limit of one IRA to IRA rollover per year per IRA owner.

The rule does not apply to distributions from employer plans, nor to rollovers from traditional IRAs to Roth IRAs or Roth conversions.

If you own Self-Directed IRAs, or you are thinking of creating one, it’s imperative to have an expert on IRA transactions in your corner, before you pull the trigger on any rollover or transfer. Otherwise you could face taxes and penalties and possibly endanger your entire IRA.

American IRA, LLC specializes in serving the needs of owners of Self-Directed IRAs and other retirement accounts. With offices in Charlotte and Asheville, North Carolina, American IRA, LLC can help you ensure that your transfers and transactions are executed properly and promptly, in compliance with IRS regulations and tax law. For more information, visit us on the Web at, or call us today at 866-7500-IRA(472)

We look forward to serving you.