Obstacles That May Prevent You From Opening a Self-Directed IRA
While the process of finding a custodian and opening a Self-Directed IRA can be pretty simple, you’ll need to review and solidify your investment strategy to ensure that nothing conflicts with your IRA. In addition to meeting the requirements of an SDIRA, you may also need to overcome a few obstacles before operating the account and experiencing the opportunities it provides. These obstacles can range from funding your account and transitioning your account to ensuring that you are abiding by the rules set in place by the IRS. Below, we are going to take a closer look at the obstacles that you may encounter when opening and operating your SDIRA, and how you can overcome them.
When you are ready to begin leveraging your Self-Directed IRA with other assets, give the team at First Western Federal Savings Bank a call. We would love to meet with you and discuss your financial goals and help you decide if a non-recourse loan is the best avenue for you right now. With a non-recourse loan, you can invest in real estate and take advantage of several other investment options. Give our lenders a call today.
Rollover Funds in Your Current 401(k)
Funds in 401(k)s from previous employers are easy to roll over, but if your 401(k) is current, then it is unlikely that you will be permitted to roll it over. If you left your retirement savings behind, the last thing you want to do is cash it out to avoid severe penalties. Leaving the funds untouched, however, will also prevent you from reaching your investing potential. Before trying to make any adjustments yourself, it is recommended that you consult with your 401(k) plan administrator to discuss funding options.
Changing from One Account Type to Another
When it comes to rolling over your current retirement plan into a different plan, you’ll want to first ensure that you are able to make the transition and that the desired account is going to provide the benefits that you are looking for. A Roth IRA can accept a rollover from another Roth IRA, or from a designated 401(k) Roth account. A Traditional IRA can be rolled over into a SIMPLE IRA and vice versa, but only after two years from the initial contribution.
The Investment You’re Planning on Making is Prohibited
Self-Directed IRA investment options seem endless. From tax lien certificates and cryptocurrency to water rights, livestock and real estate, Self-Directed IRAs can be invested in many alternatives. Before going through the trouble of opening up a Self-Directed IRA, it would be well worth your time to take a look at the prohibited investments. SDIRAs cannot be used to invest in collectibles like art, antiques, gems, coins, alcoholic beverages and certain precious metals, s-corporations and life insurance.
You Want to Bend the Real Estate Investment Rules
Real estate is among the most popular asset types that SDIRA holders invest in. The caveats, however, must be noted if you want to add this investment to your portfolio. If you are thinking of investing your retirement funds in a single-family home or vacation property and renting it to a family member, or living there yourself, you should think again.
Staying in one of the properties you have invested in, or renting it out to a family member are both strategies that are considered prohibited transactions by the IRS. Prohibited transactions can occur for several reasons, often as a result of transacting with disqualified persons. A disqualified person can include you, your spouse, a beneficiary of the IRA, your lineal ascendants, your lineal descendants and their spouses and more.
Final Thoughts
There are several more obstacles that may prevent you from opening an SDIRA that you should discuss with a custodian of your choosing. While we refer to them as “obstacles” here, they are actually IRA regulations and rules that you should be aware of anyway when opening a retirement account with a custodian. Before making a financial decision such as this, it is extremely important that you understand everything about the type of IRA you are interested in so you know what you can do and what you cannot.
Once you have established your SDIRA and are ready to experience the financial opportunities open to you when you leverage your retirement funds with a non-recourse loan, then speak with the non-recourse loan lenders at First Western Federal Savings Bank.