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Self Directed IRA Rules & FAQs

Self Directed FAQs

Commonly asked Self Directed IRA questions

Q.  What is a self directed IRA?

A.  A Self Directed IRA is an IRA, whether it be a Traditional, Roth, Simple, or SEP, that allows you to invest in non traditional invesments.  This includes Real Estate, tax liens, gold and silver, loans, private placements, and other hard assets you would like to purchase

Q.  Why would someone invest in a Self Directed IRA?

A.  It is always good to diversify your portfolio.  If you have an IRA with a conventional custodian they will only allow you to invest in stock, bonds, and mutual funds.  These are all paper assets.  With a Self Directed IRA you are able to invest in hard assets such as gold and silver or real estate.  Hard assets will never go to zero, whereas investing in a paper asset could become worthless.

Q.  Should I convert my traditional IRA to a Roth IRA?

A.  Roth IRA are a great way to invest your IRA funds.  Through then all income is tax free so if you are investing in an appreciating asset you will not have to pay any taxes on any growth. 

The challenge I find with a lot of my clients is they have already built up a Traditional or 401k and are now considering converting to a roth IRA.  If you convert a traditional or 401k to a Roth IRA you will pay all the taxes in the year of the conversion.  So if you have 100k in your 401k and want to convert those funds to a roth IRA you will get a 1099 for 100k that will be taxable.  Because of this I would advise you to talk with your tax account and see if you can afford to pay the taxes on doing the conversion first.

Q.  What is a Rollover vs a Trustee to Trustee Transfer?

A.   A rollover occurs when you request IRA funds from an IRA custodian and that custodian cuts a check directly to you.  You have 60 days to deposit the funds with an IRA custodian before those funds are considered taxable.  You are only allowed to do one rollover per a 12 month period.

A Trustee to Trustee transfer is where a new custodian sends a transfer request form in behalf of their client to the existing custodian requesting IRA funds.  Those funds are directly transferred from one IRA custodian to another.  No funds are directly deposited into the clients accounts.  Trustee to Trustee transfers can occur as many times as the client wants in a 12 month period because the client is personally taking possession of the funds.

Some common questions about self directed IRA rules :

Q.  Can I contribute IRA funds to my children or spouses Self Directed IRA?

A.  In order to contribute to a Self Directed IRA you must have earned income.  This would include w-2 or 1099 income.  If you have a child that has earned income you can contribute to their IRA in their behalf.  Keep in mind that this could have some gift tax consequences and you should consult with your tax accountant before doing so.

If you are married and you file jointly, the husband or wife could contribute in behalf of the other since the income is combined.  Keep in mind that you cannot contribute more than your taxable income.  So if you only made 5,000 between the both of you then you could not exceed 5,000 in contributions

Q.  When and how much can I contribute to a Self Directed IRA?

A.  You can contribute all year to a self directed IRA.  In addition you can contribute up to April 15 of the next year.  So for 2013 you have until April 15, 2014 to contribute for 2013.  For 2013 you can contribute 5500 to a Self Directed IRA

Q.  Can I have more than one IRA account?

A.  There is no restrictions on the amount of IRA accounts you have.  You can have a Traditional, Roth, Self directed IRA, or a SEP IRA all at the same time.  The only restriction the IRS implies is how much you can contribute to an IRA ($5,500 for 2013).  So you could contribute 3000 to your Roth IRA and 2500 to your Self Directed Roth IRA to total $5,500.

If you have any more questions about Self Directed IRAs feel free to leave your comments below or contact us at Accuplan Benfits Services

Author: , Self Directed IRA Professional