The basics of investing are by now familiar to most – Keep your money where it has the potential to earn the greatest returns, appropriate to your goals, risk tolerance, and financial situation. Self-directed investing with an IRA or Health Savings Account (HSA) is no different. Beyond the basics of investing, however, these accounts also enjoy considerable tax benefits on contributions and earnings. Funding your self-directed IRA or HSA can take many forms. Some methods may better accommodate a particular investment or situation than others.
Ready to make a contribution? Log in to the Client Portal and click “Contributions” on the left side of your screen.
Here we describe a few of the more popular ways to fund self-directed accounts:
Whether you begin with an employer-sponsored 401(k) in your 20s or a self-directed plan later in your career, contributions get the ball rolling when it comes to planning for your future. A contribution is a deposit of your personal money into your tax-advantaged plan. Contributions can occur via payroll deductions (401(k)s, SIMPLE IRAs, etc.) or at the direction of the account holder (self-directed accounts).
By making regular contributions, account holders can:
- Maximize their earning potential by putting more money to work sooner.
- Maintain a cash balance to cover asset-related expenses.
- Deduct the contributed balance from income for tax purposes (depending on the account type).
New Direction Trust Company makes it easy by providing a simple contribution path: Log in to the Client Portal, select “Contributions” from the left-hand column, and provide your banking information.
Transfers & Rollovers
Over time investors may find themselves owning multiple retirement accounts. Even with all these accounts from various providers, however, if an investor decides to invest directly in rental real estate properties, he or she may need a self-directed account that allows alternative assets. It may therefore behoove the investor to consolidate funds from accounts that don’t allow real estate into a self-directed account that does.
- A transfer is a movement of assets between similar or identical account types (e.g. Traditional IRA to Traditional IRA, SEP IRA to Traditional IRA, etc.).
- A rollover is a movement of assets between dissimilar account types that bear the same tax benefits (e.g. 401(k) to Traditional IRA, Roth 401(k) to Roth IRA, etc.).
As an example, if a prospective real estate investor owns two IRAs and a 401(k) held by three separate custodians, she can transfer the two IRAs and roll her 401(k) into one self-directed IRA with New Direction Trust Company. Upon completion of this process, she will have combined the assets of three retirement plans into one, allowing her to direct some (or all) of her capital into her rental property investments.
Transfers and rollovers allow investors to:
- Combine tax-advantaged money into one account for easier portfolio management, investment funding, etc.
- Fund an account with a sum larger than IRS-stipulated annual contribution limits may allow.
To transfer or roll funds into your New Direction Trust Company account, please submit our Transfer/Rollover Form. Once completed and signed, scan and upload the form through your client portal:
- Log in to the Client Portal.
- Click “Messages” near the top of the page.
- Compose your message, attach your Transfer/Rollover Form, and submit it securely and directly to NDTCO.
Some resigning custodians require wet-ink signatures on original paperwork for transfers, in which case the Transfer/Rollover Form will need to be mailed to our office (see our mailing address above).
If you’re initiating a transfer, our office will forward the Transfer/Rollover Form to your resigning custodian. If you’re initiating a rollover, please contact your plan administrator to request a rollover distribution.
Other Funding Methods
Should someone with a Traditional IRA or other pre-tax retirement account seek the post-tax benefits of a Roth IRA, he or she may elect to convert the account to a post-tax holding. While the details are beyond the scope of this post (investors should discuss them with their tax advisors), upon doing so the converted balance would be taxed as income in the year of the conversion. Afterward, these accounts would obtain the tax advantages afforded by the Roth IRA, namely tax-free withdrawals.
Once in an account holder’s lifetime, he or she may roll funds from an IRA to an HSA. If, for instance, the holder incurs a significant medical expense that the existing HSA balance cannot cover, he or she has the one-time opportunity to fund the HSA with IRA assets. The rolled balance would count toward the account holder’s annual HSA contribution limit.
While not necessarily falling under the category of funding your self-directed IRA, it’s important that investors understand that transfers and rollovers need not occur exclusively in cash; assets may be transferred or rolled in kind.
This is true of assets like real estate but also of stocks, mutual funds, ETFs, and many other types. Although New Direction Trust Company specializes in alternative assets, you can transfer or roll publicly traded assets into your self-directed account with us. From there, you may hold your positions indefinitely or liquidate them to fund a real estate deal, promissory note, or any other investment you deem proper for your account.
We’d Love to Hear from You!
Questions about funding your self-directed IRA or HSA? Our dedicated team is here to help! Give us a call at 877-742-1270 or send us a message through the Client Portal.