Funding Your IRA

Choosing the right way to fund your IRA

Funding your IRA is an important step to make before you can direct an investment in your self-directed IRA. Each of the three methods of funding offer a lot of advantages for investors, but the differences can be slightly confusing. That’s why we’ve taken the liberty of answering the commonly asked questions about funding an IRA below.

For more information, please consult the IRA portability chart> [Link to IRA portability chart]

Direct Transfer

Direct transfers are the most common method of funding a new or existing self-directed IRA due to the tax advantages and simplicity of the transaction. Direct Transfer Forms
  • What is a 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 their retirement funds or assets. The main advantage of a direct transfer is that there is no tax liability or IRS reporting with the distribution. This is because funds are transferred 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.
  • How do I initiate a Direct Transfer?
    It’s easy to request a direct transfer for your IRA funds or assets.
    • If you don't already have an account with us, you’ll need to open an account and set up an IRA. Go to our Get Started section to open an IRA using our Online Account Opening feature or download the IRA account forms.
    • If you’re an existing account holder, simply download our IRA Transfer Request Form.
     
  • How long does a Direct Transfer take?
    A direct transfer usually takes about 10-14 days. This time frame may be reduced if you request overnight delivery or wire transfer of cash or make arrangements with your resigning IRA custodian to process via fax.
  • What else should I know about a Direct Transfer?
    It’s important to remember when transferring assets in-kind (other than cash), the assets must be something that STRATA Trust Company will accept and hold. If the asset(s) to be transferred is property (directly-owned) or a private equity or private debt investment, please refer to the appropriate Investment Checklist and Form for that investment type. Direct transfers of publicly traded stocks, bonds and mutual funds require a brokerage account with any clearing firm or discount brokerage.

Rollover

A rollover is typically initiated when a person changes jobs, retires or decides to transfer their IRA from one retirement account to another. Rollover Forms
  • What is a Rollover?
    An IRA rollover is the movement of funds between two qualified retirement plans, such as from a 401(k) plan to an IRA, or from one IRA to another IRA. Rollovers may be subject to federal income tax unless all requirements are met (completed within 60 days and the same property is rolled over). Rollovers typically occur when you change jobs or retire and can take 2-6 weeks to complete. Rollover rules, which became effective in 2015, now limit each taxpayer to one IRA rollover during a 12-month period. Rollovers usually take place by one of these two methods: Indirect Rollover An indirect rollover is one method of transferring assets from a tax-deferred 401(k) plan to a Traditional IRA. With this method, the funds are actually given to you via check to be deposited into your own personal account. With an indirect rollover, it is then up to you to redeposit the funds into the new IRA within the allowed 60-day period to avoid penalty. If you choose to receive a direct payment of your funds, 20% of the funds may be withheld for taxes. You can recover the withheld amount if you deposit your assets into an IRA within 60 days — but you have to come up with the 20% withheld out of pocket. The deposit must be equal to the amount of your distribution, plus the 20% that was withheld. When you fund your Rollover IRA with 100% of your distribution, you will receive a refund for the withheld amount in the form of a tax credit when you file your tax return. If you do not make up the difference of the withheld amount, the IRS will consider it a distribution and will tax it as income. The amount may also be subject to an additional premature penalty tax if you are under age 59½. Direct Rollover By choosing a direct rollover, you can easily avoid the 20% withholding for taxes. With this method, the funds are actually made payable to your IRA custodian and may be mailed either to you or to your custodian. This allows for the funds to be rolled over directly from your employer’s qualified retirement plan into your IRA. Rollovers from retirement plans can be complicated. Consult your tax professional or contact us for assistance to make sure you understand and follow the rules.
  • Are there any restrictions on rollovers between IRA accounts?
    The IRS limits you to only one 60-day rollover during a 12-month period when rolling from one IRA account to another IRA. In addition, the same property rule applies, which means that you must rollover the same property (cash or in-kind assets) that was distributed to you from the other IRA.
  • How long does a Direct Rollover take?
    A direct rollover from an employer’s retirement plan generally takes 2-6 weeks, depending on how long it takes the plan administrator to process it.
  • How long does a Rollover take from one IRA to another IRA?
    You can request a distribution from another IRA and complete the rollover of the same cash or assets, generally in less time than it takes to complete a direct transfer. However, it is a reportable event which means the resigning IRA custodian will report the distribution on an IRS Form 1099. A distribution from your IRA is usually done either in the form of a check (if you've requested a liquidation) or as an in-kind distribution (if you requested re-registration of the assets). You then have up to 60 days to reinvest the funds or re-register the assets to your Rollover IRA. If the funds or assets are not rolled over within 60 days, taxes and possible penalties would be incurred. Important Note: A 2014 court ruling has changed the IRS's position regarding how often IRA rollovers may be completed. Since 2015, only one IRA-to-IRA rollover can be completed. Please review the One-Rollover-Per-Year Rule for more on this limit.
  • How is a Direct Rollover from a 401(k) or other employer-sponsored plan to STRATA accomplished?
    Whether you are retiring, changing jobs or separating from employment for any other reason, leaving a job can be the perfect opportunity to reevaluate your retirement plan needs. Moving your retirement funds to a Rollover IRA can seem like a daunting task, but it is really quite simple if you follow these easy IRA rollover rules: Step 1: Contact your plan administrator to get the distribution packet and complete the paperwork by selecting a direct rollover to STRATA. Step 2: If you’re not already an account holder, you’ll need to open an IRA. Just follow the easy steps outlined in the IRA Account Kit.   Step 3: Return the completed forms in the distribution packet to your plan administrator and provide a copy to STRATA.
  • Want to learn more information about Rollovers?
    Visit the IRS website to learn more about IRA Rollovers of employer retirement plans and IRA distributions.
  • What is the difference between a Direct and Indirect Rollover?
    A direct rollover is when you roll over from a qualified retirement plan and your plan administrator makes the rollover check payable to your IRA custodian, in which case it may be mailed either to you or to your custodian. By choosing a direct rollover, you can avoid the normal 20% federal withholding requirement for taxes. An indirect rollover is when your plan administrator makes the rollover check payable to you for deposit into your own personal account. With an indirect rollover, it is then up to you to redeposit the funds into the new IRA within the allowed 60-day period to avoid penalty. Also, an indirect rollover requires that your plan administrator withhold 20% for federal withholding taxes — and you must rollover the additional 20% withholding out of pocket. If you do not make up the difference of the withheld amount, the IRS will consider it a distribution and will tax it as income. The amount may also be subject to an additional premature penalty tax if you are under age 59½.
  • When should I initiate a Rollover?
    • When you retire, change jobs or separate from employment for any reason, you are entitled to receive a distribution of your 401(k), 403(b), 457 or Thrift Savings Plan retirement funds and rollover to an IRA.
    • When you receive a distribution of cash and/or assets from an existing IRA, you have 60 days to complete the rollover of the same property in order to avoid taxes and possible penalties.
  • Why consider a Direct Rollover from a 401(k) or other employer-sponsored retirement plan?
    By rolling over an ex-employer’s retirement plan into a Rollover IRA, you maintain the tax-deferred status of your retirement account. Also, a Rollover IRA will allow you to consolidate all of your ex-employer’s retirement accounts into one IRA, making it easier to manage your retirement investments. A significant advantage of using a Rollover IRA versus leaving your retirement assets with an ex-employer is increased investment flexibility.   Other advantages:
    • More Control
    When the rollover process is complete, you’ll no longer be restricted by the rules and policies of your former employer's retirement plan. In addition, you can avoid potential problems seen with some retirement plans such as untimely statements, lack of account information, limited investment options and any risk of the plan getting tangled in a bankruptcy matter should the former employer encounter financial troubles.
    • Avoid Withholding and the Tax Risk
    If you request a check from your employer-sponsored retirement plan, your employer will have to withhold 20% for federal income taxes. Unless you initiate a direct rollover to an IRA or transfer into a new employer’s plan, you will need to come up with the 20% from your own pocket in order to avoid taxes and early withdrawal penalties. By requesting a direct rollover to an IRA, you can avoid the withholding and the risk of missing the 60-day deadline.
    • Keep Your Money
    By rolling over funds or assets, you will maintain the tax-deferred status of your retirement money and, best of all, you won’t have to pay taxes on your earnings until you withdraw the money. If you request a check from your employer-sponsored retirement plan, your employer will have to withhold 20% for federal income taxes.   
    • Greater Investment Diversification
    Your previous employer’s plan probably had between 10-15 mutual funds from which to choose. By completing an IRA rollover, you will increase your investment options and improve your investment flexibility. You will also maintain the tax-deferred status of your retirement money and, best of all, you won’t have to pay taxes on your earnings until you withdraw the money.
    • Accessibility
    Because you cannot take a loan out against your IRA as permitted by some 401(k) plans, penalty-free withdrawal options are available with IRAs for events such as a first-time home purchase or for certain education expenses.
    • Estate Planning
    By naming a beneficiary on your IRA, that beneficiary would be able to take payouts from the inherited IRA over his or her life expectancy, thus stretching the life of the IRA account. Many employer-sponsored retirement plans require non-spouse beneficiaries to take a one-time lump distribution.
    • An Opportunity for Roth Conversion
    The income limitation that had once prevented many individuals from converting to a Roth IRA no longer applies. Now all individuals are eligible to convert regardless of your Modified Adjusted Gross Income (MAGI). Although a Roth conversion is a taxable event, a tax professional can help you determine if the potential long-term tax advantages of converting outweigh the short-term tax consequences.

Annual Contribution

An annual contribution may be made to your self-directed IRA, within the federal limits, on an annual basis, or set up as a recurring (monthly or biweekly) basis. Annual Contribution Forms
  • How do I make an annual IRA contribution?
    To contribute to your IRA with STRATA, simply follow these easy steps:
    1. Make your contribution check payable to: STRATA Trust Company
    2. Write your account number and reference the year of the IRA contribution on your check
    3. Complete and include a Deposit Certification with your check. Mail your check and Deposit Coupon to:   
      STRATA Trust Company PO Box 23149 Waco, TX  76702-3149              
  • How long does it take to open a self-directed IRA and make a contribution?
    The process can take as few as 1-2 days.
  • How much can I contribute to an IRA for 2016-2017 according to the contribution rules?
    If you are eligible to make an annual IRA contribution, you may contribute up to the maximum of $5,500 if under age 50 or up to $6,500 if age 50 or over. You may contribute as often as you wish during the year (monthly, quarterly, etc.) as long as you do not exceed your eligible limit, which cannot exceed the maximum of $5,500 if under age 50 or $6,500 if age 50 or over. With a Simplified Employee Pension (SEP), the annual contribution limit increases to as high as $53,000 for 2016 and $54,000 for 2017, enabling a quick source of funding for a self-directed SEP IRA. Plus, if you also consider making an additional annual IRA contribution of $5,500 (or $6,500 if age 50+), you can quickly amass a sufficient balance to start self-directing an IRA.
  • What's the deadline for making my IRA Contribution?
    The envelope must be postmarked to STRATA (not to your dealer) by April 15 (excluding extensions). If contributing for the current tax year, your contribution can be made as early as January 1.

Take the Next Step.

Whether you’re ready to open an account or just want to ask us a few questions, we’re always here to help.