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Three Ways to Fund your IRA: Direct Transfer, Rollover or IRA Contribution

If you’re interested in opening and funding a self-directed IRA, knowing the ways in which you can fund your IRA is important. The three common methods of funding a self-directed IRA with STRATA Trust are:

1) a direct transfer of an existing IRA that you have with another institution,

2) a rollover from a 401(k) or other workplace qualified retirement plan, and/or

3) making an out of pocket annual IRA contribution

Let’s take a deeper dive into each method by providing some helpful insights to guide you in your decision.

Direct Transfer

A direct transfer is the movement of IRA funds or assets directly from one IRA custodian to another. Through a direct transfer, the IRA owner never takes possession of the funds or assets. The main advantage of a direct transfer is that there is no tax liability or IRS reporting with the movement of the funds or assets. This is because funds are transferred directly from one institution to another. In most cases a direct transfer is a simpler option as it avoids having to comply with the 60-day rule and the possibility of incurring taxes and penalties. It also bypasses the one rollover per year rule.

A direct transfer with STRATA takes about 7-10 days, and there is potential to speed up the process if you request a faxed or overnight delivery of your Transfer Request form, or you request a wire transfer or overnight delivery of cash by your resigning custodian.

•  To initiate a direct transfer to your STRATA IRA, simply complete STRATA’s IRA Transfer Request form and remit it to our Operations team.

Rollover

A rollover to an IRA is the movement of funds from a 401(k) plan or other employer qualified retirement plan to an IRA. (You can also rollover from an IRA, but with the IRS mandated “one rollover per year”, a direct transfer is generally the preferred method to use for moving funds that are already in an IRA.)

Rollovers may be subject to federal income tax unless all requirements are met (see the 60-day and the same asset rule). Rollovers typically occur when you change jobs or retire and may generally take one to six weeks to complete depending on how quickly your plan administrator processes.

Rollovers usually take place by one of these two methods: Indirect Rollover or Direct Rollover.

An Indirect Rollover moves funds from a tax-deferred 401(k) or other qualified employer plan to a Traditional IRA. With this method, the funds are usually issued by the plan administrator in the form of a check to be deposited by the plan participant. With an indirect rollover, it is then up to the plan participant to deposit the funds into the new IRA within the allowed 60-day period to avoid penalty.

A Direct Rollover is a method where the funds are made payable directly to the successor IRA custodian. This allows for the funds to be rolled over directly from an employer’s retirement plan into an IRA. Rollovers from retirement plans can be complicated but by choosing a direct rollover, you can easily avoid the 20% withholding for taxes.

To initiate a rollover, you’ll need to contact the plan administrator or IRA provider to request a distribution.

•  Before remitting the rollover proceeds to your STRATA IRA, you’ll need to complete STRATA’s Deposit Certification form to certify the rollover.

 IRA Contribution

Making an out-of-pocket IRA contribution is another way to fund a self-directed IRA.  Individuals can deposit up to a maximum of $5,500 ($6,500 for ages 50+) each year to an IRA. The frequency of the deposits can be monthly, quarterly or annually, and may be made as one has the funds available to contribute as long as the contribution is made on or before the tax return filing deadline in April.

For an individual that is self-employed or works for a small company, the employer may enroll employees in a Simplified Employee Pension (SEP) and opt to make a SEP contribution to an IRA for each employee. SEP contributions allow for up to a maximum of $55,000 to be deposited each year and allow flexibility for an employer to make or not make a SEP contribution in any given year. In addition, the individual participants may also be eligible to make an annual out-of-pocket IRA contribution up to $5,500 (or $6,500 if age 50 or over).

•  When making an annual IRA contribution to your STRATA account by check or wire, please complete STRATA’s Deposit Certification

•  To make an IRA contribution by ACH, you’ll need to complete STRATA’s ACH Contribution Agreement.

•  Before making the initial SEP contribution to a STRATA account, the Form 5305-SEP would need to be provided to STRATA.

Summary

When choosing the method for funding a self-directed IRA, consulting a professional is key. Individuals are encouraged to contact their financial advisor or tax professional since certain methods may carry tax implications.

As a directed custodian, STRATA Trust Company assures the prompt and efficient processing of your transfer, rollover and annual IRA contributions. You may contact us at 866-928-9394 or Service@StrataTrust.com for questions you may have about funding a self-directed IRA and following the IRS rules to avoid potential issues.

 

ABOUT STRATA TRUST COMPANY

When alternative IRA custody is this easy, the possibilities are endless.

Founded in 2008, STRATA Trust Company has built a reputation delivering streamlined and straightforward custody. Our service-driven team has helped thousands of investors and investment professionals unlock opportunities in self-directed retirement accounts across a wide range of alternative investments. Formerly known as Self Directed IRA Services, Inc., STRATA has strategically realigned to support a broad range of investment professional partners in growing their IRA asset base – always with an eye on the future.

With offices in Austin and Waco, Texas, STRATA operates as a Texas-chartered trust company with direct oversight by the Texas Department of Banking. Led by a seasoned team with over 350 years of combined experience, 35,000+ investors empowered and over $1.8 billion in assets under custody, our customers experience a clear difference in our approach to IRA custody.

Tags: all things retirement, IRA, ira contributions

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