Self-direction refers to the client/investor making all his or her own investment decisions, and then directing our office to invest in the many nontraditional (and traditional) assets that the IRS allows in these types of retirement plans. As the account administrator, Next Generation Trust Services makes sure that the investment, the investment structure and titling complies with IRS code and processes the transaction. Our office is available to educate our clients and their trusted advisors as needed but we do not advise on nor endorse any types of investments.
As the client, it’s crucial that you do your research and become familiar with:
- The different types of tax advantaged accounts;
- Where your retirement funds are located;
- What type of accounts they are in;
- How self-directed transactions work;
- The process for your retirement account to accept returns/dividends from your investments.
Getting Started with Self-Direction
1) Determine the account type. You can self-direct a Roth or Traditional IRA, an education plan or health savings account. In addition, self-employed people may consider a SEP IRA (similar to a Traditional IRA but with a higher contribution limit) or as a business owner, a SIMPLE IRA for you and your employees. You may also be eligible for a Solo k. Your tax advisor is the best person to consult about which type of retirement plan is best for you, and your contribution eligibility.
2) Open the account.* Timing for establishing an account is dependent on receipt of required application documents. Our office requires complete, correct documentation and original (wet ink signature) documentation and fees. Our processing time is two business days upon receipt. Your self-directed IRA will be the investor and will have its own name and tax ID number.
*In order to streamline the process, our office has created Starter Kits for each account type with complete instructions on what our office needs to process your application.
3) Funding the account*. This depends on the types of account(s) you already have. 401ks and employer-sponsored plans can only be rolled over into your new self-directed account, if allowed. Rollovers must be initiated by the account holder by instructing the former administrator to distribute the funds.
Transfers are from like IRA to like IRA only and are initiated by our office. Transfers typically take two to six weeks to complete, depending on the custodian. Some good things to ask your custodian are if they require a Medallion Guarantee Stamp, an original transfer form, and if they will accept a fax request. Our office has experience with many custodians so we can help you navigate this.
You may also fund the new self-directed account with new funds (personal or business check). Your contribution limits and eligibility depend on your unique financial circumstances; your tax advisor can guide you regarding eligibility.
4) Making a self-directed transaction. There are many alternative assets that may be included in a self-directed retirement account. It is up to the individual account holder to do all the necessary research and due diligence about these investments. Our professionals are available to answer questions you may have about the types of nontraditional investments that self-direction allows.
Based on your instructions about the particular investment and the transaction type, we’ll send you our forms to complete, and request any further documentation needed to effect the transaction and send out the funds. As the account administrator, we review each transaction to ensure it meets IRS guidelines and that the tax-advantaged status of your IRA is protected (we do not review for legality). We will also make you aware of ERISA (Employee Retirement Income Security Act) guidelines so you may avoid making a prohibited transaction that involves a disqualified individual or entity, which our staff can explain.
Remember that your self-directed IRA is the investor, with its own name and tax ID number, and that all income and expenses related to the asset flow through that account. Our turnaround time for transactions is typically two business days once we receive the required paperwork and cleared funds. Please note that wire transfers clear in 24 hours, checks in five business days and money orders in two business days. Fees are also due at the time of the transaction.
You can read more about working with Next Generation Trust Services as your self-directed retirement plan administrator at http://nextgenerationtrust.com/blog/what-to-expect-from-us-your-self-directed-ira-administrator/.