Jeff Dixon, MBA, CISP, SDIP
Many people ask uDirect IRA Services questions about transferring money from a 401k to a Self-Directed IRA. They also ask what happens when an IRA investment generates profits exceeding the annual contribution limits.
Be reassured that neither incoming profits nor transferring retirement funds has an affect on the IRA contribution limits. An IRA contribution is a deposit made to an individual retirement account (IRA). Making these contributions can often help individuals save for retirement and get tax advantages.
Let’s Define the Terms
A contribution involves sending money from your personal checking or savings account to an IRA. To qualify, you must have income from a W-2 job or self-employment. Even if you lack personal income but are married to someone with W-2 or self-employment income, and you file a joint federal tax return, you can still contribute to a Roth or Traditional IRA. Annual limits exist on IRA contributions, and you can find more information about these limits HERE.
Profits represent the gains generated by investments within the retirement account. For instance, if your IRA lends money to another individual, the IRA earns interest from loan payments, which qualifies as profits. When an IRA purchases a rental property, it earns profits from rents received and the increase in market value upon selling the property. The potential profit from an investment is unrestricted, contingent upon the specifics of the IRA’s investments.
Funds transferred or rolled over from a 401k or another retirement account to a Self-Directed IRA comprise the funds contributed by you or your employer. Also transferred could be the profits generated from investments. Once these funds reside within a retirement account, you have the freedom to transfer them to a different retirement account. It’s possible that you can move only company-sponsored retirement funds after leaving your job.
Disclaimer
uDirect IRA Services, LLC does not assume fiduciary responsibilities and does not provide tax, legal, accounting, investment, or other professional advice. If you require expert assistance in areas such as tax, legal, accounting, or investment matters, it’s advisable to consult a qualified professional.
Seeking advice from tax or legal experts before making decisions about your retirement account is highly recommended. If you have inquiries about Self-Directed IRAs or related topics, please feel free to contact us at (866) 706-2798 or info@uDirectIRA.com. To begin, complete an online application HERE.
This article does not constitute financial, tax, or legal advice and should not be relied upon as such.
