IRA transfer vs rollover — it’s one of the first questions new SDIRA investors ask. Learn about each funding method so you can choose the option that’s right for you.

In this video, John Paul Ruiz dives into the pros and cons of each funding method: transfers, rollovers, and contributions. He also highlights some of the most essential rollover rules to follow in order to maintain your SDIRA’s good standing.

If you want even more in-depth information, be sure to read through our blog post, IRA Transfer vs. Rollover: What’s the Difference?

Timestamps:
0:00 | Intro
0:30 | What’s the Difference Between an IRA Transfer and Rollover?
0:54 | What is a Transfer?
1:31 | What is a Direct Rollover?
2:20 | What is an Indirect Rollover?
4:00 | Rollover Rules to Keep in Mind
5:54 | What about Contributions?
6:52 | Learn More about IRA Funding Methods

Disclaimer: All IRA investments have risk and investment decisions should be made with the help of an experienced professional or financial advisor. IRA custodians can provide personalized service, but they cannot provide investment advice.

About Us: The Entrust Group is the leading self-directed IRA administrator and an acknowledged authority in the field of alternative investments.

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Transfers, Rollovers, or Contributions: How to Fund Your SDIRA

A Self-Directed Individual retirement account (SDIRA) can be a powerful tool for individuals looking to take control of their retirement savings. Unlike traditional IRAs or 401(k)s, SDIRAs allow investors to choose from a broader range of investment options, including real estate, precious metals, private equity, and more. But before you can start investing in these alternative assets, you need to fund your SDIRA. Here, we’ll explore three common methods: transfers, rollovers, and contributions.

1. Transfers:
Transferring funds from an existing retirement account to your SDIRA is a straightforward process. You can move funds from a traditional IRA, Roth IRA, SEP IRA, or even a former employer’s 401(k) or 403(b) to your SDIRA. The key advantage of a transfer is that it’s a tax-free movement of funds directly from one retirement account custodian to another. To initiate a transfer, you’ll need to contact your current custodian and request the necessary transfer forms. Once completed, your custodian will transfer the funds to your SDIRA custodian. It is important to note that transfers are not limited by annual contribution limits, allowing you to move substantial amounts of money into your SDIRA.

2. Rollovers:
Rollovers function similarly to transfers, but they involve taking possession of the retirement funds before moving them to the SDIRA. With a rollover, you have 60 days to redeposit the funds into your SDIRA to avoid any penalties or taxes. However, there are some caveats when it comes to rollovers. If funds are withdrawn but not redeposited within the specified time frame, they will be considered taxable, potentially resulting in penalties. Additionally, the IRS imposes a once-per-year rollover limit for IRAs, meaning you cannot complete multiple rollovers in the same 12-month period. Therefore, it is crucial to understand the rules surrounding rollovers to ensure you don’t incur any unexpected liabilities.

3. Contributions:
Contributions are the most common and straightforward way to fund an SDIRA. Like traditional IRAs, SDIRAs have annual contribution limits set by the IRS. As of 2021, individuals under the age of 50 can contribute up to $6,000 per year, while those over 50 are eligible for a catch-up contribution of an additional $1,000. Contributions can be made in cash, and individuals can choose to contribute a lump sum or make regular periodic payments throughout the year. It is important to note that contributions to SDIRAs are subject to income limitations for individuals who also contribute to a traditional IRA or a workplace retirement plan, such as a 401(k).

Regardless of the funding method you choose, it’s crucial to consult with a qualified financial advisor or tax professional who specializes in self-directed retirement accounts. They can guide you through the specific rules and regulations associated with SDIRAs, ensuring you remain compliant and maximize the benefits of these unique investment vehicles.

In conclusion, funding your SDIRA can be done through transfers, rollovers, or contributions. Each method has its own advantages and considerations, so it’s essential to carefully evaluate your options before making a decision. With an SDIRA, you’ll have the freedom to diversify your retirement portfolio beyond traditional investments and take control of your financial future.