How to Move Funds From a Self Directed IRA to a Traditional IRA

IRAs offer tax advantages while building your personal wealth.

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A self-directed individual retirement account is designed to give you more control over your investment portfolio than you get with other types of IRAs. You have more investment choices, including stocks, bonds, real estate, limited liability corporations, private notes and real estate. A traditional IRA is somewhat more passive, as an investment manager will manage it for you and there are fewer investment choices. Moving your self-directed IRA to a traditional IRA has the potential to increase your return on investment due to the detailed investment plan your fund manager will design. However, the Internal Revenue Service has specific guidelines you must follow in order to avoid paying taxes and penalties.

Step 1

Choose an IRA manager to open a traditional IRA with. Anyone may open a traditional IRA as long as he received taxable income and is not 70 1/2 at the end of the year in which he opened the account.

Step 2

Inform your self-directed IRA trustee that you are moving funds. Use a trustee-to-trustee direct rollover to avoid taxes and possible penalties.

Step 3

Fill out and submit the rollover paperwork and authorization form. It can take between one and two months to complete the transfer.

Step 4

Monitor the transfer. When it has been completed have your fund manager draw up your investment plan.

Step 5

File your income taxes using the 1099-R form sent by your self-directed IRA trustee. Find the letter “G” in Box 7, showing your rollover was completed legally and you owe no tax. On Form 1040A, write your rollover amount in line 12a and “0” and “rollover” in line 12b. On Form 1040, write your rollover amount in line 16A and “0” and “rollover” in line 16A.