On this episode of Adam Talks, tax attorney and IRA Financial’s founder, Adam Bergman, Esq., discusses the three ways one can fund a Self-Directed IRA: direct contribution, IRA to IRA transfers, and 401(k) to IRA rollovers, and the rules for each.
3 Ways to Fund a Self-Directed IRA – Episode 448
Adam Talks, hosted by Adam Bergman, founder of IRA Financial, discusses three primary methods to fund a Self-Directed IRA. Bergman notes that many people are intrigued by the freedom and control offered by Self-Directed IRAs but are often unsure about how to start and fund these accounts. He intends to clarify this by explaining the straightforward methods available for funding.
The first method of funding a Self-Directed IRA is through contributions. For 2024, individuals can contribute $7,000 annually, or $8,000 if they are 50 or older, to various types of IRAs, such as traditional, Roth, SEP, and SIMPLE IRAs. Bergman details the income limitations and tax implications for these contributions, emphasizing that even those without access to a 401(k) can contribute to an IRA, provided they have earned income. He encourages more Americans to take advantage of this option, despite statistics showing low contribution rates.
The second method is through IRA transfers, which can be either direct or indirect. Direct transfers are tax-free, unlimited transactions between institutions, while indirect transfers involve the IRA owner receiving the funds and having 60 days to deposit them into a new IRA. However, indirect transfers can only be done once every 12 months and must be carefully managed to avoid penalties. Bergman explains the flexibility and limitations of both methods.
The third method is rollovers, particularly common when changing jobs. Rollovers can also be direct or indirect, with direct rollovers being preferred to avoid a 20% withholding tax by the employer. Bergman advises against indirect rollovers due to the complications of reclaiming the withheld tax. He also explains the conditions under which rollovers can occur, such as leaving a job or reaching the age of 59 and a half.
Bergman highlights the differences between IRAs and 401(k)s, noting that 401(k) funds are not as easily accessible as IRA funds. For example, 401(k) funds can only be rolled over to an IRA upon a triggering event like reaching a certain age or leaving the job. He also mentions options like loans and hardship withdrawals for those needing access to their 401(k) funds while still employed.
In conclusion, Bergman summarizes the three funding methods—contributions, transfers, and rollovers—and their respective rules and limitations. He emphasizes the benefits of Self-Directed IRAs, such as the ability to invest in a wider range of assets, and encourages listeners to explore these options for greater control over their retirement funds. He invites listeners to visit IRA Financial’s YouTube channel for more information on related topics.
