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

Published on August 23, 2018

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 NewAccounts@NextGenerationTrust.com with any questions.

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