Self Directed IRA Rollovers. What Are They? Why Would You Bother?

Self directed IRA rollovers. Are your eyes glazing over already? Too hard and don't want to know? If you're setting up a self directed IRA you will probably need to know what a self directed IRA rollover is, and now is a good time to start.

And don't worry, it's not as hard as you may think.

Simply speaking, a self directed IRA rollover is a transfer of assets from a tax deferred retirement program directing those assets into your own personally managed IRA, or Individual Retirement Account. Setting up a self directed IRA isn't that difficult, and has some major advantages.

(A self directed IRA is a trust that lets you take control over the investing of your own retirement funds rather than leaving it in the hands of an IRA custodian that may be concerned with directing your funds towards their own investments rather than getting the best return possible for you.)

The important part of a self directed IRA rollover relates to tax. If your retirement funds are in a tax deferred program like a 401(k), for example, a rollover allows you to transfer those funds to your self managed IRA tax free. This preserves your tax free status for your retirement funds but allows you to transfer into a different account like a self managed IRA.

Here's 3 major advantages of rolling over your retirement funds.

Firstly, as mentioned, it preserves the tax free status of your retirement funds. Lets say, for example, you have your retirement funds in your own IRA now, and are currently eligible to receive your benefits. If you elect to take those benefits that attracts tax. But if you would rather rollover those funds to avoid attracting the tax, you are allowed to do so, by means of an IRA rollover.

So if you're in a financial position to defer taking your retirement benefits there are good reasons to rollover your IRA. It avoids tax now, and why pay tax now if you don't need to?

Secondly, if you opt for a rollover of your account, it allows you to continue with your investment plans and to grow your retirement assets until you do need those retirement funds, later in life, when your pension will be needed. You control when you need to take your funds, and only attract tax once you need to use the funds, and keep growing your investments in the meantime, tax free.

And the third reason for an IRA rollover is where you have your retirement funds with a tax deferred retirement program now, like an employer sponsored plan, and want to rollover those funds into an IRA trust like a self directed IRA for the purposes of directing your own investments.

There are good reasons to direct your own investments by setting up a self directed IRA. For example a real estate investment is about the best IRA investment, and with control of your own IRA you can invest your retirement funds in real estate. With a traditional IRA your range of possible investment options is often extremely limited, but setting up your own self directed IRA gives you control you wouldn't otherwise have on the type of investment options available to you.

(Surprisingly, even in the current disastrous real estate market there are still some fantastic IRA real estate investments available, if you know where.)

Although the basic principles of IRA rollovers are simple, the details can be more complex, and you need to consult your tax advisor to find out the details.

So don't let your eyes glaze over when your financial advisor starts to talk about a self directed IRA rollover. There are good reasons to set up a self directed IRA, and although the details of the process might be difficult, the reasons to do so are sound.

And once you've done it you're well in front for investing for your future retirement.