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How to Fund an Account

How do you fund a SDIRA?

You can contribute, transfer, roll-over or convert existing accounts to begin your self directed investing.

Contributions

When you want to start a new account from scratch, or if you do not have any money that qualifies for a transfer, then, you will start with a contribution.

A contribution is either out-of-pocket money that an individual puts into his/her retirement account or money that is deposited straight from an individual’s paycheck. Payroll deductions are also known as salary deferrals.

How much money can be contributed each year per individual depends upon the plan that is selected. There are limits to how much you can place into each account, each year. That said individuals can also have more than one account, and more than one type of account that they can contribute to each year.

Transfers

Transfers are the most common method for moving an existing IRA. Transfers, whether cash or assets, are typically sent from one custodian to another custodian. Transfers are NOT a taxable event.
You can transfer money from a retirement plan that you already have (self-directed or not) into your new self directed account.

Examples of transfers:

  • Traditional IRA to Traditional IRA
  • Roth IRA to Roth IRA
  • CESA IRA to CESA IRA
  • HSA IRA to HSA IRA
  • SEP to SEP
  • Simple to Simple
  • SEP to Traditional IRA
  • Simple to Traditional IRA

Rollovers

A rollover is the movement of funds from a qualified plan (such as a 401(k) or 403(b)), and have their own set of rules. There are three types of rollover movements: Direct Rollovers, Distribution Rollovers, & Taxable Rollovers. Direct Rollover is typically the best move.

Roth Conversions

A conversion consists of moving monies from a tax-deferred retirement plan (or QRP component) to a tax-free Roth IRA account. Because the original account is tax-deferred, the amount “converted” to the Roth is subject to taxes based on an individual’s tax rate.

Roth Conversion movements are as follows:

  • Traditional IRA to Roth IRA
  • SEP to Roth IRA
  • Simple to Roth IRA
  • Qualified Retirement Plan to Roth IRA (Taxable Rollover)

Note that you do NOT have to have current earned income to convert an existing account. The money was deposited into the account when you had earned income, as earned income. If you are unemployed today, that does not change the fact that when the contributions were made to the account, you were earning money.