Perhaps the most important decision when starting your Self-Directed IRA is how to begin and/or add to your funding.
There are two ways you can do this, which are via transfer from an existing IRA account or by a complete rollover of one or more retirement accounts.
Each method has strict procedures which should be taken into consideration sooner rather than later.
It is important to understand that for a Transfer of funds, the financial institution which currently hosts your account needs to implement the procedure. If you elect to do a Rollover, you, as the account holder, are the one that implements the change.
A Transfer of funds is a non-taxable event whether you do so one time to start or as often as needed, and for an amount of money you determine.
To implement a transfer to your Self-Directed IRA you need our transfer form. In addition, you would need to provide a current (or most recent) account statement from the custodian of the other IRA. The funds you wish to transfer must already be liquidated.
This statement provides confirmation that the requested funds are being transferred from the same account type (such as a Roth IRA to a Roth IRA) and that the funds for the amount you are requesting are immediately available. Your statement also provides the account and routing numbers needed to complete the actual transfer.
Please keep in mind that the custodian of your other IRA may also have additional requirements on their end in order to authorize the transfer. For example, some require a hard copy with your signature. If the institution which hosts your other IRA is not local, this could delay your request as many institutions no longer accept faxed documents.
In some cases, original documents are required, which means that copies would not be accepted. You should also be sure that you reference the primary location of the custodian rather than a local branch, since this could also delay your transfer request.
The custodian of your other IRA may have a policy as to how they will send the funds to your Self-Directed IRA. For example, some will perform a wire transfer, possibly for a separate additional fee, while others may only issue a bank check which is mailed directly to the manager of your Self-Directed IRA. In this event, the institution may provide choices such as overnight delivery or some form of expedited service.
It is important that you take every step and provide all documentation necessary at the start to assure that your transfer of funds goes smoothly on the first try. It is also important that you provide all documentation from the “sending” institution to the custodian of your Self-Directed IRA for them to handle on your behalf.
By letting your custodian handle everything with the “sending” institution directly, it assures you that the transfer of funds will be a non-taxable event. It also prevents another delay in the process.
You should also be aware of the time frame needed to complete a transfer of funds into your Self-Directed IRA. If, for example, your transfer would take 30 days from the start to become official, it could impact your ability to close on a real estate deal in time.
When choosing a Rollover as a means to add to your Self-Directed IRA, there are other considerations. One important difference from a Transfer is that you, as the account holder, implement the transaction.
A rollover may or may not be a taxable event, depending upon the circumstances.
Either way, you need to be sure that you have any and all paperwork completed, sent to the proper party, and have an understanding of the amount of time needed from when you initiate the process until you have the funds available in your Self-Directed IRA.
A successful completion of a Transfer or Rollover also means that you will know exactly what to expect for any future requests. The better you can plan for future investing, the better off you will be!