Funding Your New Self-Directed IRA

Estimated reading time: 3 minutes(Last Updated On: April 12, 2021)

Self-directed IRAs are still not quite as widely known as IRAs that are opened with traditional custodians. But there is some evidence to indicate that the self-directed IRA is becoming a more popular option, and an ever increasing amount of funds are flowing into the self-directed IRA structure each year.

As is the case with IRAs where a bank or investment broker serves as custodian, the first thing you’ll do after opening a new self-directed IRA is fund your account. There are several different funding options to choose from.

Direct Contributions

You can set up an IRA at almost any bank, insurance company, brokerage, or mutual fund. There are a wide variety of investment options to choose from, and your earnings are untaxed until they are paid out of the account.

Since a self-directed IRA can be set up as either a traditional IRA or a Roth IRA, your annual direct contribution limit will be $6,000 (or $7,000 if you’re 50 or older), or less if your earned income for the year is less than these amounts. However, if your self-directed IRA is set up as a Roth IRA, then you are also subject to contribution limitations depending on your modified adjusted gross income for the year.

Rollover From an Existing IRA

If you only make direct contributions to your self-directed IRA, it can take a number of years before you have a large enough account balance that you can afford to make certain kinds of investments. Because many individuals choose to open a self-directed IRA so that they can invest their retirement funds in things like real estate and private businesses, they are often anxious to have a greater account balance at their disposal. If you already have other IRAs, you can simply roll the balance from one or more of those accounts into your new self-directed IRA. Just be sure that the account types (traditional or Roth) are the same as your self-directed account, otherwise there could be some unintended negative tax consequences.

Rollover From 401(k)

Similarly, there’s a good chance you have a 401(k) account with your current employer, and perhaps even multiple 401(k) accounts still on deposit with prior employers. It’s easy to roll these account balances into your new self-directed IRA, but you need to be careful if your self-directed IRA is set up as a Roth account. Rolling over 401(k) funds into a Roth IRA generally triggers a tax on the full amount of the rollover. The long-term benefits of the Roth structure may outweigh the immediate tax, but that’s something for you to determine with your tax advisor.

As with any other retirement savings account, it’s important to save as much as you can, and invest as often as you can.

Quest Trust Company, Inc. is a leading provider of self-directed retirement account administration and consultation. We are the experts when it comes to “alternative” investments including real estate, currency notes, precious metals, oil & gas, and private placements. We administer client’s self-directed IRA’s from across the US. For any further information, please visit us at: