What are two of the easiest ways to fund a self-directed IRA? A rollover or transfer are two of the easiest ways to fund a self-directed IRA. A rollover and transfer are easily confused though and if you make a mistake when doing a rollover or transfer you could be subject to certain penalties. We are here to help you understand the difference between a rollover and transfer so that you don’t make any mistakes. If you still have any questions about rollover or transfers or your specific situation, again, feel free to contact us.
What is a transfer?
A transfer is when you take from one retirement account (IRA, 401k or self-directed IRA) and move it to another retirement account (IRA, 401k or self-directed IRA). A transfer is typically easier than doing a rollover because it is done as a custodian to custodian transfer. The money that you are moving goes directly from your one retirement account to the new retirement account. In general the new custodian where you will be moving your IRA monies/investments too will handle the move and you’ll most likely only need to fill out and sign a transfer request form for them.
What is a rollover?
A rollover is when you take from one retirement account (IRA, 401k or self-directed IRA) and move it to another retirement account (IRA, 401k or self-directed IRA).
What makes a rollover different than a transfer? When you are moving the money from your old custodian to the new custodian you the account owner are given the money before it goes into the new retirement account. It is considered a tax-free distribution.
However, you must put this distribution into the new retirement account within 60 days of receiving it. If you don’t put the money into the new retirement account within 60 days a myriad of negative consequences will come.
Another thing to note with rollovers is that you can only do one rollover a year. Since you have 60 days before the money has to be put into the new retirement account you could momentarily use it for something else and get a lot of benefit from it. They don’t want you to continue to do this over and over again which is why they only allow it to happen once a year. Because of this, it is not a wise decision to do anything else with your money besides putting it into the new retirement account. The problem with doing other things with your money besides putting it into the new account is that you may arrive at the 60 days and not be able to deposit the money into the new account. What would happen then? You more than likely would be subject to different penalties and taxes.
Hopefully this helps explain a little more clearly what the difference is between a rollover and a transfer. If you need to know more how this works for your specific situation then contact us and we will make sure our professionals help you out. Here is our transfer request form if you need to start the process of transferring your money to a great custodian.