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Has Your Work Situation Changed? You Can Roll Your 401(k) Funds into a Self-Directed IRA

Has Your Work Situation Changed? You Can Roll Your 401(k) Funds into a Self-Directed IRA

Do you have a retirement plan that is still with an employer where you are no longer working? If you have recently lost a job due to COVID-19, or are in job transition, make sure you don’t leave your old 401(k) plan behind. If yours is still with a previous employer, you can rescue those funds and roll them over into a self-directed IRA.

Right now, it’s unclear for many workers if or when there will be a new employer with a new workplace retirement plan. However, one thing is clear: opening an IRA (Roth or Traditional) is an option that enables individuals to make sure their retirement savings stay with them. Moreover, if that new retirement plan is self-directed, there is a much wider range of potential investment options available that account holders—not their employers—control.

Rollovers into self-directed IRAs

Since most 401(k) plans are limited in terms of allowable investments, rescuing and rolling over those funds into a self-directed IRA opens up the door to greater investment opportunity, without the limits imposed by most plan sponsors on the defined contribution plans they offer. As you may know from your existing 401(k), most of those plans are limited to investing in mutual funds or exchange traded funds, stocks, and bonds. Opening a new self-directed IRA will enable you to include an array of alternative assets that you may already know and understand, such as real estate, private equity, precious metals, hedge funds, secured and unsecured notes/loans, energy investments, and more.

Through self-direction, you’ll build a more diverse retirement portfolio, create a hedge against stock market volatility, and gain better control over your investment returns as part of your retirement strategy. You’ll also have the flexibility of buying and selling your investments when you choose, rather than according to a prescribed schedule that most 401(k) plans follow.

You can choose to do a rollover into a new Roth or Traditional IRA, or a SIMPLE or SEP IRA, depending on your employment status, overall tax situation and how far out you are from retirement. As always, we recommend you discuss your unique scenario with a trusted advisor. You may also have to check with the current plan administrator to see if there are any restrictions concerning the type of IRA allowed for a rollover from the existing 401(k).

How to roll funds over into a self-directed IRA

At Next Generation, our comprehensive starter kits walk you through all the steps needed and required documentation to submit in order to open a new self-directed retirement plan with us, and include a rollover form for Traditional, Roth, SEP, or SIMPLE IRAs (we have starter kits for other types of plans as well). Moreover, our helpful team of professionals are available to answer questions about opening a self-directed IRA or about the many types of non-publicly traded, alternative assets, these plans allow. You may schedule a complimentary education session; or you may contact Next Generation by phone at 888.857.8058 or by email at

Considering Taking a Hardship Distribution from Your Retirement Plan?

The coronavirus pandemic is leaving millions of Americans on furlough or out of a job, dealing with reduced hours or workload… but NOT with reduced monthly bills to pay. For many, this is a time of financial hardship. Sadly, according to a 2018 Federal Reserve report, 40 percent of adults cannot cover a $400 emergency expense and the current situation goes far beyond that.

Sometimes, individuals consider dipping into one’s retirement plan to cover short-term expenses. Among the emergency expenses that may qualify for such a withdrawal are tuition/education expenses; down payment or repairs on a primary residence, rent or mortgage payments (to thwart possible eviction or foreclosure); out-of-pocket medical expenses; and funeral costs.


Changes with the CARES Act

This stimulus package has loosened the rules around taking hardship withdrawals from retirement plans, and loans from 401(k) plans. A CARES Act provision allows individuals who are facing adverse financial consequences due to COVID-19 to withdraw funds from their retirement accounts without penalty (regardless of age). This applies to IRAs and 401(k) plans.

The withdrawal must be made before December 31, 2020 and can be up to $100,000. Tax payments on this income are extended out three years. For those taking loans against their 401(k)s, that amount is also raised to $100,000. Note that there are no loans from IRAs.

Why gamble with your retirement savings?

Many financial experts argue against taking out a hardship loan from one’s 401(k) plan to avoid reducing any retirement savings, when there are other loan options available (such as a home equity loan, SBA loan, or other lines of credit). And, all good intentions aside, it may be difficult to replace the funds from a hardship distribution from an IRA or other retirement plan—and then rebuild on that money for retirement.On top of that, the stock market has suffered a tremendous downturn, with subsequent volatility almost daily, as a result of COVID-19 and the economic stressors stemming from lockdowns.

Weathering market volatility through self-direction

Self-directed investors have greater leeway when it comes to hedging against that stock market volatility. That’s because of the many alternative assets that can be held in a self-directed retirement plan. Investing in real estate, precious metals, private equity, or other non-publicly traded assets give savvy investors many more ways to build a more diverse retirement portfolio that have stronger potential to weather the COVID-19 storm (and other times of economic uncertainty). One reason is because the returns on nontraditional investments in a self-directed IRA do NOT directly correlate with stock market returns.

You can even loan funds from your self-directed IRA to someone who is dealing with a cash flow shortage, with the terms worked out between both parties, and receive interest and principal paid back to your IRA.

As always, it is best to consult your trusted financial adviser about how to navigate financial hardship as it relates to your retirement plan. At Next Generation, we’re here to answer any questions you have about self-direction as a retirement strategy, or about the many alternative assets allowed in these plans. You can schedule a complimentary educational session to learn more or contact us directly via phone at 888.857.8058 or email

You Can Take it With You – Use Your 401(k) to Fund Your New Self-Directed IRA

Analysts forecast that within the next five years, assets held in IRAs will nearly double those in 401(k) plans, with IRA assets growing to $12.6 trillion by the end of 2022—up from $9.2 trillion at the end of last year. Assets in 401(k)’s in the US. are estimated to reach $6.6 trillion by 2022, up from $5.3 trillion last year. These figures are according to Jessica Sclafani, director of the retirement practice at research firm Cerulli Associates.

Sclafani cited that a major source of this growth is rollovers from 401(k) plans–nearly all (96%) of the $2 trillion total IRA contributions from 2012 to 2017 came from rollovers from defined contribution plans. That, and contributions to IRAs (mainly due to rollovers) have exceeded distributions from them in recent years. In fact, IRAs became the largest segment of the US retirement market in 2013. Sclafani attributes much of this rollover activity to the lack of flexibility in workplace plans with distributions. Because of this, participants are looking for more flexible arrangements.

It’s not surprising to learn that 401(k) plans have not enjoyed the same organic growth; in recent years, distributions exceeded contributions, and the primary driver behind 401(k) asset growth has been market performance.

Roll over your 401(k) assets into a self-directed plan

When you open a self-directed IRA, one way to fund it is cash. Another is to transfer funds, or you can rollover funds from an eligible 401(k) plan. Doing this will open doors to a wider pool of investments, since self-direction allows for many alternative assets not allowed in typical retirement plans.

A rollover occurs when funds are moved from a custodian as a distribution (a taxable event) and are received by the new custodian (like Next Generation) as a rollover contribution. It is a movement of funds between non-like plans, such as 401(k) to an IRA. You may open a self-directed Traditional, Roth, SIMPLE or SEP IRA, using the starter kits on our website. Keep in mind, though, that rollovers from an IRA to another IRA are generally limited to 1 (one) per 12-month period (this excludes direct transfers and Roth conversions). You must also contact your current custodian and have them initiate the rollover. Our helpful video about transfers and rollovers should answer any of your basic questions.

Do you have a 401(k) that’s returning lackluster results or one that’s stuck in a traditional brokerage investment vehicle?

Are you looking for the flexibility and freedom you need to include alternative assets in your retirement plan? When you’re ready to roll (over), you can download our rollover form or contact Next Generation for help getting your self-directed IRA set up, properly funded, and ready for investing in alternative assets. Contact us at 1.888.857.8058 or with any questions.