“Self-directed” is a phrase that intimidates a lot of people. If you’ve never really been too forward-thinking or controlling when it comes to your personal finances, then it’s difficult to imagine a scenario in which you might be in charge of your own retirement account. But the truth is, you’re always in charge of your retirement account: you say where the money goes and when, because it’s your money. You’ll be delighted to learn, then, that a Self Directed IRA is easy to get started once you know how to fund one.
Starting a new Self Directed IRA—even if you’re working off of a previous IRA that you want to rollover—doesn’t have to be an intimidating process. Here are four ways of kicking off a new IRA in which you’re in charge:
- Contributions to a Self Directed IRA
The simplest form of investing in a Self Directed IRA is to insert money into it directly. You can open a new account and fund it with your personal money—it’s that simple. “Contributions” is also a term for the enduring additions you make to your IRA over time. Whether you invest in gold, real estate, stocks, and more, these “contributions” will still be called the same thing because they essentially start with you writing a check.
If you want, you can withdraw a portion or even the entirety of a traditional IRA and put the money into a Roth IRA, thus “converting” the money into the new retirement account. However, there are some rules in play here: most specifically, you’ll be expected to move the funds within 60 days, otherwise it’s not really a “conversion.” There are also tax consequences in a conversion, which means you’ll want to keep track of everything that goes on in order to ensure that all of your taxes are in line and appropriate considering the actions you’ve taken.
You’ve likely heard this phrase “rollover” on television—there’s no end to the commercials telling you about IRA rollovers and what they can do for you. But they don’t really get into specifics, do they?
A rollover happens when cash and/or assets from a retirement account are given to you directly for the purpose of reinvesting in another retirement account. You get one “rollover” per year, which means you can’t constantly shift money between retirement accounts. As is the case in the conversion, you need to make the switch within 60 days or else it won’t be considered a “rollover.”
Directly transferring cash and/or assets between one retirement account and another. Directly transferring these investments has a number of advantages; true, you don’t see the money yourself in your personal account, but so long as that’s not your purpose, you should be fine with that. Because these transfers are seen as trustee-to-trustee transfers and you aren’t taking direct possession of the money and/or assets involved, there’s no limit to how many of these you can execute per year. Unlike a rollover and a conversion, wherein you receive the money, you never “receive” the money from your accounts in this case, removing many of the tax consequences of rollovers and conversions.
If you’re interested in taking control of your financial destiny, you’ll want to be aware of everything that goes into using a Self Directed IRA. And that includes funding options. You’ve read the four funding options supplied here, but if you want to learn more about these IRAs and how to get started with them, you can call us at 828-257-4949 or simply keep browsing AmericanIRA.com.