If you have an existing retirement plan and want to move those funds into a self-directed account, rest assured you will encounter the words “transfer” and “rollover.” Many people believe these terms are interchangeable, but they are actually very different. Each has different tax treatments and rules that you need to know in order to decide which transaction best suits your needs.
Midland IRA handles both transfers and rollovers regularly, as more and more individuals are choosing to use self-directed retirement plans.
An IRA Transfer (trustee-to-trustee transfer) occurs between like accounts. For example, a Traditional IRA can “Transfer” to another Traditional IRA at a different custodian. A transfer is used when you have existing IRA funds at one custodian, but want to move them directly into a new IRA housed with another custodian. A transfer can be performed unlimited times and can be a cash transfer or an in kind transfer of an asset.
The best example of a rollover is when you have a 401(k) and would like those funds moved into an IRA. Provided the funds are portable, an individual can rollover the 401(k) funds into an IRA in two ways: a direct rollover or an indirect rollover. A direct rollover sends the funds from your current plan administrator directly to another administrator. An indirect rollover, on the other hand, involves the funds from the plan administrator being given to the plan participant, with the intent to place those funds into an IRA. Because the funds are actually touched by the plan owner, this transaction is reported to the IRS. The plan participant then has 60 days to deposit the funds into another retirement account. If this does not occur within the 60-day time-frame, the account owner is required to report the rollover funds as income for that year and as well as pay taxes on that amount. If you are talking about a Qualified Plan such as a 401k rollover, and it is done indirectly, the plan administrator will automatically withhold 20%. The client would have to come out of pocket to send the full amount (prior to withholding) to the new custodian and essentially has given the IRS an interest free loan. If you decide to perform an indirect rollover, then you can only do so once every 12 months.
Midland IRA is a self-directed retirement plan administrator serving clients across the nation. Our staff is experienced in handling transfers and rollovers and can help you navigate the process should you decide you want to take control of your retirement funds and start using self-directed plans.
Contact us to get started self-directing an IRA today at 239-333-1032!