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IRA Account Types and Funding

IRA accounts come in a few types, differentiated by tax-treatment of the funds and contribution limits.  It is important that the new IRA account you establish with Kingdom Trust Co. is of the correct type based on your situation.

The method used to move funds between accounts will vary based on the type of retirement plan being moved.

This topic can be complex and/or confusing.  Please reach out to your Safeguard consultant if you need assistance determining how to proceed.

IRA Account Types

Traditional IRA Most common.

This is a conventional tax-deferred IRA.

The account may be funded via annual contributions, rollover from the tax-deferred portion of an employer plan like a 401(k), or a transfer from another Traditional, Rollover IRA or SEP IRA.  Funds from a SIMPLE IRA may also be rolled over to a Traditional IRA, so long as the SIMPLE IRA has been in existence for more than 2 years.

A Traditional IRA may not accept rollovers from a Roth IRA or the Roth portion of an employer plan like a 401(k).

Roth IRA A Roth IRA has different tax treatment, whereby contributions are taxed and all future growth is then tax-free.

Only funds from another Roth IRA or the Roth portion of an employer plan like a 401(k) may be rolled into a Roth IRA.

It is possible to perform a Roth IRA conversion on funds currently held in a tax-deferred account, and then transfer those funds into a new Roth IRA.  the conversion event will be taxable, and is best executed prior to transferring funds to Kingdom Trust Co.

SEP IRA A SEP IRA is an employer-sponsored version of an IRA with higher contributions allowed by the employer.

Just because a prior IRA may be a SEP does not mean the new self-directed account should be a SEP as well.  You would only establish the self-directed IRA as a SEP if you intend to make your future contributions into the self-directed account.  Otherwise a Traditional IRA would likely be appropriate and can accept a rollover from a SEP IRA.

SIMPLE IRA A SIMPLE IRA is an employer sponsored version of an IRA with higher contributions allowed by the employer.

Just because a prior IRA may be a SIMPLE does not mean the new self-directed account should be a SIMPLE as well.  You would only establish the self-directed IRA as a SIMPLE if you intend to make your future contributions into the self-directed account.

The self-directed IRA may need to be a SIMPLE if your prior account is less than 2 years old, as such an account can only be rolled over to another SIMPLE.

Otherwise a Traditional IRA would likely be appropriate and can accept a rollover from a SIMPLE IRA that is more than 2 years old.

Inherited / Beneficial IRA Any type of IRA may be inherited.  An inherited IRA can be self-directed.  The new account setup will need to either a Traditional IRA or a Roth IRA as appropriate to the tax-treatment of the original account.  A SEP or SIMPLE IRA would be changed to Traditional status by inheritance.

An inherited IRA may not be combined with or accept rollovers from any other type of IRA, though more than one inherited IRA of the same tax type from the same person can be consolidated.

 

Funding Types and Processes

There are four ways that funds may be added to an IRA account.  The method(s) you use will depend on the type of plan(s) you are moving funds from.

You may consolidate funds from multiple source accounts, assuming they are all in your own name and of compatible tax treatment.  It is not possible to consolidate funds of different tax treatment or account ownership.

When moving funds from another retirement plan, you should have the option to move all or a portion of that account, and the potential to move more funds in the future should you choose.

Detailed instructions for each funding method are linked from the summary below.

Transfer from another IRA An IRA of the same or compatible tax treatment may be directly transferred from another institution into your Kingdom Trust Co IRA.

This is the preferred method of moving IRA funds and is not limited in amount or frequency.

The transfer request is initiated from KTC as the receiving custodian, using an Account Transfer form.

Direct IRA Transfer Instructions

Direct Rollover from a Qualified Employer Plan When moving funds from an employer plan like a 401(k), 403(b), 457, Pension, or TSP, the process is referred to as direct rollover.

You may only rollover from such a plan if you are no longer employed by the employer or are still working with the employer but over the age of 59 ½.  Some plans do allow for “in-service” distributions based on other criteria such as a lower age threshold or years of service, but that is rare.  You can check with your plan administrator to determine eligibility for a rollover.

Such direct rollovers are not generally limited in amount or frequency, though some plan administrators may have their own policies restricting frequency.

You will initiate the request for rollover by contacting the prior plan administrator.  This is done after the new Kingdom Trust Co. IRA account has been established and an account number issued.

Direct Rollover Instructions

IRA Contribution While setting up your new self-directed IRA you will have the option to make IRA contributions.  This will be done in accordance with standard rules for the IRA account type.

Such contributions are easiest to make after the IRA has been setup and an account number issued.

IRA Contribution Instructions

Indirect / 60-Day Rollover This method is rarely used.

An indirect IRA rollover can be used to expedite the funding of an IRA, but only when there is one IRA source being used.

The IRS limits such transactions to one per 12-month period per taxpayer.

Rather than go through the formal trustee-to-trustee process of a direct transfer, you can take a taxable distribution into your name from the source IRA.  You then have 60 days within which deposit those funds to the new IRA.

This method is not a good option when the source is a qualified employer plan due to the requirement for 20% withholdings on the initial distribution to you.

60-Day Rollover Instructions

 

IRS Rollover Chart

The following chart outlines IRS rules for transferring or rolling over funds between different plan types.

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