June 29, 2023

Why Roll a 401(k) into a Self-Directed IRA?

Written By: Daniel Gleich 

Key Points 

  • You can expand your investment options by rolling over your existing 401(k) into a SDIRA. 
  • If you roll your 401(k) into a Self-Directed IRA, your retirement savings can continue to grow tax-deferred or tax-free.
  • You can roll over your funds into a Self-Directed IRA by a direct or indirect rollover

If you have ever had a 401(k) then you likely know that most retirement accounts are limited to the investment choices of Wall Street. If you currently have a 401(k) with a former employer, you likely have the choice to roll your funds over into a Self-Directed IRA. Many people choose to roll over their 401(k)s into Self-Directed IRAs because it allows them to expand their investment options beyond Wall Street.  

Why Select a Self-Directed IRA? 

Self-Directed IRAs allow you to invest in what you know and believe in. Investors are often drawn to roll their 401(k) into a Self-Directed IRA because they provide the opportunity to invest in alternative investments. With a Self-Directed IRA, you can invest in real estate, promissory notes, precious metals, and so much more. 

SDIRA spelled out with wooden blocks on a desk

In addition, if you leave your retirement account with your former employer, you could miss out on a higher quality of service, not to mention lower fees. Madison Trust’s primary reason for existence is to offer unparalleled customer support in the Self-Directed IRA industry. With the highest ratings in the industry, you will gain white glove service as you proceed through our efficient, simple setup process.

The How-To 

Once you choose to roll over your 401(k) into a Self-Directed IRA, you will first need to contact your current plan administrator to verify whether your account is available to be rolled into a Self-Directed IRA. In most cases, you can roll over your 401(k) into an SDIRA upon the separation of services or once you have reached retirement age. Once you initiate the rollover with your current plan administrator, your retirement funds can be moved by either a direct or indirect rollover. 

A Direct Rollover

A direct rollover occurs when your retirement funds are moved from your 401(k) or other employer account directly into your Self-Directed IRA. A direct rollover is regarded as an easy way to roll over your 401(k) into a Self-Directed IRA. As the account holder, you will initiate the rollover by completing all required paperwork to roll over your retirement funds to your new Self-Directed IRA. 

Indirect Rollover

An indirect rollover is another way to move your 401(k) funds into a Self-Directed IRA. With this rollover method, your 401(k) funds will be distributed to you, the account holder. Once your funds are in your hands, you have only 60 days to roll your funds into your newly opened Self-Directed IRA. 

401k rollovers writtten on a white notepad on a desk with a clipboard, calculator, pencils, and  cup of coffee

Avoid Penalties 

If you are considering the idea of cashing out your 401(k), a direct rollover is the safest way to avoid penalties. The good news is that rolling your 401(k) into an IRA safeguards you against those penalties.  

Rolling it All Up

Whether you are transitioning between employment or reaching retirement age, rolling over your 401(k) into a Self-Directed IRA can supercharge your retirement investing. A Self-Directed IRA can enable you to invest beyond Wall Street. You stand to gain more independence with your investments along with lower fees, and exciting investment opportunities for your future. 

Disclaimer: All the information contained on our website is a general discussion for informational purposes only. Madison Trust Company does not provide legal, tax or investment advice. Nothing of the foregoing, or of any other written, electronic, or oral statement or communication by Madison Trust Company or its representatives, is intended to be, or may be relayed as, legal, tax, investment advice, statements, opinions, or predictions. Before making investment decisions, please consult the appropriate legal, tax, and investment professionals for advice.  

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