You can’t make any investments via a Self-Directed IRA without first putting some cash in it. If you’ve decided that implementing a Self-Directed IRA strategy is for you, then the next step is to open an account with American IRA, LLC, and move some cash into the account to allow you to make the investment.
Basically, there are three ways you can fund your Self-Directed IRA account – a direct contribution of new retirement money, a transfer, or a rollover. Rollovers can be direct or indirect rollovers. Here is a brief description of each self-directed IRA funding method:
As of 2017, you can contribute up to $5,500 in new money each year to a Self-Directed IRA or Roth IRA. If you are over age 50, you can contribute an additional $1,000 in “catch-up” contributions. Roth IRA contributions may be limited by your income. Traditional IRA contributions are not limited by income, but at higher income levels you may not be able to take a deduction on the full amount of your contribution.
If you are married, you can also make a full contribution on behalf of your spouse to a spousal IRA, so that brings your potential contribution up to $11,000 per year, plus applicable catch-up contributions.
To contribute to a traditional IRA, you must be under age 70.5, and you must have earned income of at least the amount you are contributing for the year.
You can transfer funds or assets from one custodian to another within the same type of retirement account. So if you have money in a traditional IRA with another custodian or administrator, you can have it transferred to American IRA, LLC. If you have money in a Roth IRA with another custodian or administrator, you can transfer that to a Roth IRA with American IRA, LLC.
You can transfer as often as you like, and there are no limits to the amount you can transfer from one custodian to another. But the assets must move between like accounts: Traditional IRA assets must move to traditional Self-Directed IRA assets, and Roth account assets must move to Roth accounts.
Transfers are not taxable events.
A rollover occurs when you move funds from one type of tax-qualified account into a different type of account. Rollovers are generally not taxable, however. Your old custodian will send you a 1099-R, but if you execute the rollover property, it will not generate tax liability.
In a direct rollover, your old custodian will issue payment directly to your new custodian or administrator via a trustee-to-trustee transfer in which the money will not touch your hands. Alternatively, they may send you a check, made payable to your new custodian.
In an indirect rollover, your old custodian or administrator will send payment to you. You will then have sixty days to complete the rollover by depositing the money into your new account, or the IRS will deem you to have taken a distribution, which can generate immediate tax liability and potential penalties. If you are rolling money over from a 401(k) or 403(b) plan, you can expect your old custodian to withhold 20 percent from the amount you roll over to pay taxes with.
You can make only one indirect rollover in any 12-month period, according to a recent tax court ruling.