switch 401(k) to self-directed IRA


Have you recently left one employer to start a new job with another? Have you retired recently? If so, did you leave a former 401(k) behind? In these types of  situations, it’s not uncommon for 401(k)s to stay behind with the previous employer’s custodian. 

Employer-sponsored 401(k) plans typically include traditional  investment options: stocks, bonds, mutual funds and money market accounts. If you are no longer an active employee, but you have already put money into your employer’s plan, you can roll that money over into an account of your choosing, such as a Self-Directed IRA.

Why choose a Self-Directed IRA?

Self-Directed IRAs are for those who want to be in the driver’s seat of managing their retirement. Experienced investors and/or those who have a great interest in investing are often drawn to these accounts, because they allow for alternative investments, such as real estate, private equities, lending money, and much more. 

While the IRS does require that you work with a certified IRA custodian, such as our firm IRA Innovations, it’s this freedom to choose, combined with the tax advantages offered through a Self-Directed IRA that are some of the biggest benefits listed by our clients. 

How the rollover process works

If you decide to roll over a previous employer 401(k) to a Self-Directed IRA, the process is really pretty simple. One important thing to remember is that all activities related to the rollover should be compliant with IRS procedures to avoid any tax penalties. With a direct rollover, you will initiate the rollover with your previous employer custodian and complete the required paperwork. Then, you will direct your previous custodian to roll over your funds to the new custodian to create your new Self-Directed IRA.

Investment options with Self-Directed IRAs

Once the rollover is complete, you will be ready to start making some new investment choices. With the wealth already accumulated through your former  401(k), you can invest in many options with a Self-Directed IRA, such as:

  • Real estate, including apartments, single family homes, commercial properties, or undeveloped land
  • Limited Liability Companies
  • Non publicly traded companies
  • Secured and unsecured notes
  • Mortgages/deeds of trust
  • Partnerships and joint ventures
  • Private stock
  • Tax sale certificates
  • Car paper
  • Factoring
  • Accounts receivable
  • Commercial paper
  • Equipment leasing
  • Other investments options

With such a varied list of alternative investments, you can build a strong, versatile portfolio that will utilize the funds you accumulated with your previous employer 401(k) while also enjoying the benefits of a Self-Directed IRA. To learn more about how to set up a new Self-Directed IRA, contact us for a free consultation today.

Learn more about the basics of Self-Directed IRA from IRA Innovations in Birmingham, AL. 

IRA Innovations provides self-directed retirement account administration and education in Birmingham, AL, Tuscaloosa, AL, and Nashville, TN. As the experts when it comes to “alternative” investments including private equities, they can provide the necessary tools and information to get started with a Self-Directed IRA.