How to Fund a Self-Directed IRA: Actions and Steps
Before you do anything with your Self-Directed IRA, there’s one requirement every investor must hit: you have to have money in it. If you’re thinking about implementing a new retirement strategy, then it’s important to remember that old phrase from physics: nothing happens until something moves. In this case, nothing happens in your retirement account until some money moves. But how do you fund a Self-Directed IRA? What are the methods? What method will work best for you? To answer those questions, we’ve put together this brief guide on how to fund a Self-Directed IRA.
Contributions to a Self-Directed IRA
First, let’s talk about the most basic form of funding your IRA: contributions. This is money you can send directly to your IRA from earned income. For example, you might make a contribution to a Roth IRA. This won’t have any impact on your current tax situation—those contributions aren’t tax-deductible—but you will now have money in a Roth IRA for investing. This means that the money you put in that account is now tax-protected, as are the assets you purchase with that money.
For example, let’s say you have a Self-Directed Roth IRA and want to use some of that money to purchase silver bullion investments. Assuming you were working with American IRA, you would then direct a buy order to us (as the account’s custodian), who would fulfill the transaction on the IRA’s behalf. This silver would then be held in an insured approved depository. Voila! You now have a Self-Directed Roth IRA, some silver in the account, and are ready to go.
Keep in mind that this is just an example of how it works and not specific financial advice to buy silver; you can choose whatever you want to do with the money in the Self-Directed IRA as soon as you make the contributions.
Transfers to a Self-Directed IRA
Let’s imagine that you already have a Roth IRA with $100,000 in it. You want this to become a Self-Directed Roth IRA. What can you do? When you move money from one custodian to another within the same type of retirement account, it becomes a transfer—a very easy and straightforward way to ensure you have the funding the Self-Directed IRA needs.
Keep in mind that this type of transaction is straightforward but does require that some capital already exists in a similar type of account. A transfer is simple and easy to do, but it does have those prerequisites.
Rollovers with a Self-Directed IRA
When you rollover an account, you move funds from one type of account to another. There are two types of rollovers here: direct and direct rollovers. In a direct rollover, it’s a trustee-to-trustee transfer in which the old custodian moves the money to the new account and custodian. In an indirect rollover, you have sixty days to complete the rollover by depositing the money into your new account after receiving it from the old custodian or administrator. Be careful here, as this can potentially create a taxable event if you don’t do what’s required of you!
These methods of funding a Self-Directed IRA are relatively easy to do, straightforward, and simple to understand. It only requires the effort and desire to begin. Which one will be best for you? That will be up to your individual situation. Interested in learning more about Self-Directed IRAs? Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation. Download our free guides or visit us online at www.AmericanIRA.com.