You Asked, We Answered: Transfers vs. Rollovers - Which One is Right for You?
Estimated reading time: 3 minutes
For March's national webinar we discussed the differences between transfers and rollovers to educate our viewers about the different types of funding methods. Participants who joined our free webinar had the opportunity to ask John Paul Ruiz, our Director of Professional Development, questions regarding their 401(k) funds, options to fund a self-directed IRA, contributions, and more. Continue reading to see what types of questions were answered...
Q: Can I rollover a partial amount of a past employer's 401(k) to a self-directed IRA, and the other portion to a current employer 401(k)? Can I still have both rollovers be treated as the single annual rollover that's permitted?
A: Assuming your employer will allow for two direct rollovers, you may. The one rollover allowance per twelve month rule does not apply to direct rollovers from 401(k) plans to an IRA.
Q: Can I use a Roth IRA to invest in an asset-backed note investment?
A: Yes, any investment available in a Traditional IRA is available for a Roth IRA.
Q: After I fund my account and before investing in my preferred asset (e.g. buy a house), where does my funding reside? Is it invested in a portfolio of Entrust's choice? Can we ask it to be invested in something specific?
A: Unfortunately, if it is at Entrust, your cash will sit in a non-interest bearing checking account. Since Entrust does not offer investments, we do not have any investments to offer. The account however is FDIC covered.
Q: For a Direct Rollover, is there a requirement for a 12-month separation before you can do another Direct Rollover, or can you do multiple rollovers per year?
A: Direct rollovers from an employer plan like a 401(k) to an IRA is not subject to the one rollover per twelve month rule.
Q: If we cannot invest our Roth IRA funds on an annuity (which is an insurance product), what other annuity-like investments can we make that will give us a tax-free income-stream?
A: Roth IRAs are tax-free for distributions if “Qualified”. You have options on your investments. Check with a competent investment advisor.
Q: Can I invest IRA distributions in a Roth IRA?
A: Distributions from a Traditional IRA can be re-contributed to a Roth IRA if you are eligible to make the Roth contribution.
Q: How can I use my Roth IRA funds to invest in offshore real estate that generates rental income? Is the rental income and future capital gain tax-free?
A: Investing in a foreign country requires assistance from a legal counsel familiar with the foreign country’s law. Foreign country laws are not subject to US tax law therefore it is highly recommended to consult with your legal counsel before proceeding. The IRA administrator (Entrust) must abide by the US tax law and regulations. Purchasing a property in a foreign country with your IRA assets must satisfy those rules.
Q: Are there specific real estate investment institutions (e.g. Realty Shares) with whom we have to work with in order to avail of self-directed IRAs? Am I responsible for transferring notes and titles to Entrust for holding them within my self-directed IRA?
A: You do not have to go to an intermediary to use your IRA assets to invest in the investments you have chosen. You may speak to one of our Business Development Managers, and they can walk you through the process of opening an account with Entrust.
Q: Would Social Security income qualify for Roth IRA contributions?
A: Unfortunately, Social Security Income is not considered as earned income for IRA Contribution purposes. The following items are considered taxable compensation:
- Wages, salaries, tips etc.
- Professional fees
- Commissions and bonuses
- Self-employment income
- Alimony & separate maintenance
- Military differential pay
- Nontaxable combat pay
The following are NOT considered taxable compensation:
- Earnings & profits from property
- Interest & dividend income
- Pension or annuity income
- Deferred compensation
- Income from certain partnerships
- Self-employment loss
Q: Is Medallion the same as notarized?
A: A Medallion guarantee is not the same as a document being notarized. It does hold a higher form of identity authentication.
Thank you to everyone who participated in our national webinar. We encourage our readers to post any additional questions regarding self-directed IRAs or retirement planning in the comments section below. You can view the full recording of this webinar here to get answers to questions which are not listed in this article.