Frequently Asked Self-Directed IRA and 401(k) Questions
Whether you’re new to self-directed IRAs and 401(k) investments or an old pro, we know you’ll have questions. We’ve compiled a list of the most frequently asked questions, and the answers. If you don’t find what you are looking for, you can call us, chat, or use the form below to submit your question.
General Questions
How are self-directed accounts different than other retirement accounts?
Most retirement accounts are held at banks, insurance companies, or investment firms and the investment options there are only publicly-traded securities and other investments that are derived from those. You choose what to invest in with a self-directed IRA or 401(k). This allows you to diversify your retirement portfolio the way you would like.
How long does it take to open a self-directed IRA or 401(k)?
The process can be as quick as 2 days or take as long as three weeks. It depends on how you are funding your account and who your current retirement plan custodian is.
Will I get audited if I have a self-directed account?
We believe that currently, the IRS does not screen tax-payers to be an audit candidate by the types of investments that they hold in their retirement accounts. This is due partly to the fact that not every custodian of every retirement plan reports their information digitally. The IRS has no way of including many manual submissions for evaluation. Since 2015, there is additional information that is requested on the annual IRA reports the IRS receives each year, (Form 5498), that asks if the IRA holds an alternative investment. Until the IRS can use the same screening process for all tax-payers regarding IRAs, they cannot discriminate by choosing a sample for audit that does not include all taxpayers. This problem may be resolved in the future. It is estimated that an additional $350,000 would be required by the IRS to sort the problem, and it has been requested by officials to have this done in the future.
We have noticed from our clients, and with informal information exchanged with our professional colleagues, that when a taxpayer is being examined, the examiner is now more often asking for transaction information on self-directed IRAs that they learn of.
My CPA says this is a tricky option and thinks there is a tax issue to the tune of 39% how come this seems easy?
Your CPA may believe you are planning to take a distribution from your IRA, then using those funds to make the investment. We would actually be doing a custodian-to-custodian transfer of your IRA, then making the investment within your new IRA here. This would be a non-reportable/non-taxable event.
IRA Funding
Can I contribute to my plan?
Yes, but if you participate in another retirement plan through your employer, you may not be able to deduct all your Traditional IRA contribution. You may be better off contributing to a Roth IRA instead.
What are the different ways to transfer funds into my account?
You can make a direct custodian-to-custodian transfer to your IRAs and 401(k)s. These are non-taxable and non-reportable events. You can also do a distribution-and-rollover. This would be a reportable event, but not a taxable event. To do this, you instruct your current custodian to distribute any portion of your account to you directly. From here, you roll any percentage of these funds into your account within 60 days. You will get a 1099R from your custodian and you must report this on your taxes. But because you rolled the funds into a plan before 60 days, it is not taxable.
How long does it take to get a transfer done?
A custodian-to-custodian transfer takes between 7 and 20 days, depending on how long it takes your current custodian to transfer your funds. It takes only a couple of days to transfer funds between bank or brokerage IRA accounts. This is because they belong to a program run by National Securities Clearing Corporation® for brokerages and Depository Trust Company® for banks that do the transfers electrically. To belong to the program, they have agreed to approved transfers within a certain time-frame if the information provided is correct. They must reject the transfer within another period and provide the exact reason. This system is titled the Automated Customer Account Transfer Service (ACAT). Self-Directed IRAs and 401(k)s cannot be part of this program, so non-ACAT transfers must be processed manually and take a little longer.
How do rollovers from my 401(k) to WealthFlex work?
WealthFlex will provide you with the information you will need to provide to your 401(k) administrator about your rollover. You will not need to have tax withholding if you don’t want to. Rollovers need to be initiated by the 401(k) plan owner, unlike transfers, that are initiated by WealthFlex.
How is an Indirect Rollover different that a Direct Rollover?
Requesting an indirect rollover requires your plan administrator to withhold 20% for tax withholding. They then send the funds directly to you. You then are able to deposit any percentage of those funds into an IRA or 401(k) within 60 days for it to not be taxed. With a direct rollover, your plan administrator sends your funds directly to your new IRA or 401(k), no withholding needs to happen, and you don’t deposit the funds into your taxable account.
Managing WealthFlex IRA
If my IRA Trust invests in an LLC, what rules does the LLC have to follow?
When your trust owns a percentage of an LLC, the LLC must not engage in a transaction that is not allowed for your IRA. When the LLC returns money to the partners (including your IRA Trust), it needs to be pro-rata and at the same time as other partners.
How much can I contribute to my IRA?
The IRS sets limits on an annual basis as to what contribution may be made to your Self Directed IRA and/or your Solo 401(k).
IRA’s: If you are under age 50 you may contribute up to the maximum of $5,500, if age 50 or over, you may contribute up to $6,500. As long as you do not exceed your eligible limit you may contribute as often as you’d like during the year (monthly, quarterly, bi-annually, etc)
For Simplified Employee Pension IRA (SEP), the annual contribution is $54,000
For Solo 401k’s for 2018 the annual contribution limit is 55,000 ($54,000 for 2017)
What is a Required Minimum Distribution (RMD)?
A required minimum distribution is the minimum amount you must withdraw from your retirement accounts each year. You generally are required to start taking withdrawals from your IRA, SEP IRA, SIMPLE IRA, or retirement plan account when you reach age 70½. Roth IRAs do not require withdrawals until after the death of the owner. Generally, an RMD is calculated for each account by dividing the prior December 31 balance of that IRA or retirement plan account by a life expectancy factor that IRS publishes in Tables in Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).
When am I required to begin taking distributions from my self-directed account?
You’re required to take your first RMD by April 1st of the year following the year you turn 70 ½. After that, each annual RMD must be distributed by December 31st.
Are their taxes on RMD’s?
The account owner is taxed at his or her income tax rate on the amount of the withdrawn RMD. However, to the extent the RMD is a return of basis, it is tax-free.
What can I expect to happen if I fail to take my RMD?
Whether the IRA is your own or inherited, failure to withdraw your RMD by the deadline results in one of the most onerous penalties in the tax code: 50%. That’s right. If you were supposed to take out a minimum of $4,000 and did not do so, you have the privilege of writing the IRS a check for $2,000.
About WealthFlex
Where is WealthFlex incorporated?
WealthFlex is a Delaware C Corporation.
What happens to my money if WealthFlex goes bankrupt?
Your money is safe, no matter what happens to WealthFlex. WealthFlex clients do not have any counter-party risk with WealthFlex. The cash and investments that you have in your IRA or 401(k) is directly owned by your trust. Your trust is not part of the balance sheet of WealthFlex. WealthFlex does not have access to your cash or investments. WealthFlex never touches your cash or investments.
Does WealthFlex have Professional Liability Insurance?
WealthFlex maintains a one million dollar Liability Insurance Policy with Insureon in Allen Texas.
How does WealthFlex keep our privacy and secure our information?
WealthFlex’s application is housed on Amazon Web Services and maintains the same security protocols as hundreds of financial institutions around the world that also use Amazon Web Services. WealthFlex also secures credit card and debit card transactions with Authorize.net and subscribes to Trustwave for periodic testing of the servers for vulnerabilities.
