“I Have To Do a Self-Directed IRA . . . Cuz I Gotta”

This topic I have to address, as lately I’ve had several similar comments that basically reflect to the title of this blog. Many people erroneously believe that when they choose to self-direct, they have to self-direct their funds into the same type of account from the type of account that it is coming from. Since I’ve never been a great writer, let’s put it more bluntly:

Many people believe if their funds are in an old 401K, then they have to roll it over into a new 401K, and if their funds came from an IRA, then have to move their funds to a new IRA.

Is any part of the previous statement true? Well, yes, but not for the reason many think. It is true that Roth IRA funds cannot be transferred into a 401K plan unless it is a designated Roth 401K. Otherwise, however, there is no truth in the statement.

Simply speaking, other than the aforementioned example with the Roth IRA, most funds from other retirement plans can be transferred or rolled over into a new IRA or 401K. Where the funds “go” (transfer or rollover) is more contingent upon the employment status of the account holder and really has nothing to do with what type of account it is coming from.

For example, if the individual is self-employed, that individual qualifies for the 401K plan and, as a result, both IRA (non-Roth as mentioned earlier) and old 401K funds can be brought into the newly-established 401K. Conversely, if the individual is not self-employed (typically a W-2 employee or retired), both IRA and old 401K plan funds can be transferred/rolled over into the IRA, not the 401K. So, it makes no difference (generally) what type of funds are going into the new plan, but what entity “type” the new plan is.

Let’s break this down a bit further and examine the permissibility and restrictions in rolling over other retirement fund accounts into either IRAs or 401Ks.

Roll to a 401K? — Roll to an IRA?

Roth IRA NO NO

IRA (Traditional) YES YES
SIMPLE IRA Yes, after 2 years Yes, after 2 years
SEP-IRA YES YES
457 (government) YES YES
401K (pre-tax) YES YES
403B (pre-tax) YES YES

BawldGuy Here: I apologize for the helter-skelter appearance of the data above. I was unable to correct it adequately. Why, you may ask? Cuz I’m a TechTard when it comes to that stuff. :)

As you can see, just because someone has an IRA doesn’t mean they can only roll it to another IRA. And, the same applies to the 401K plan as well. It depends on how and what “entity” is established and what the person qualifies for.

Obviously, this is a brief breakdown on rolling over funds into an IRA or 401K . . . as these are the types of accounts that people typically utilize for their self-directed accounts. If you are interested in learning how other retirement accounts can or cannot be rolled over into other retirement account entities (whether self-directed or not), please feel free to ask OR also visit www.irs.gov and search for Tax Information for Retirement Plans Community.

This entry was posted in 401(k)'s & IRA's, IRS on by .

About John Park

John Park is a facilitator for self-directed IRAs and 401Ks and founder of PGI Agency, Inc. which is host to PGI SelfDirected. Prior to that, John maintained his own insurance agency and also worked in intercollegiate athletics (Arizona State University, Big Ten Conference Office). For over 6 years, PGI has established both self-directed IRA and 401K accounts so that individuals can take control of their retirement assets and invest in both Traditional and Non-Traditional (e.g., real estate) assets. John believes that most people should fully explore having FULL control of their retirement funds and be the steward of their own money.

2 thoughts on ““I Have To Do a Self-Directed IRA . . . Cuz I Gotta”

  1. John Park

    Chris, I am so sorry I missed your question. Yes, correct. Even though the plans we set up can ACCEPT Roth contributions to a plan, IRS rules (presently) do not allow Roth IRA transfers or rollovers into either a qualified 401K or designated-Roth 401K. In fact, presently, Roth IRA funds can only be transferred into a Roth IRA.

    Again, sorry I missed your question. If you have any questions, please feel free to contact me directly at 602.684.2922.

    John

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>