Wisegeek defines A self-directed IRA rollover as a way to fund and manage an individual retirement account (IRA).
The act of “rolling over” funds takes money from one account and transfers it into another and there are two ways to accomplish this; a traditional rollover and a direct transfer.
For a true self-directed IRA rollover in the United States, as defined by federal Internal Revenue Service rules, the money must be withdrawn from the account in its entirety. It is then sent to the investor, usually in the form of a check. You must then invest it in a self-directed retirement account within 60 days of receiving the money. Taxes and penalties may apply to this classic rollover scenario, including a 20% withholding rule. Rollovers are typically reported to the IRS.
When you rollover a qualified retirement account (like a pension plan lump sum, 401k, or 403b) to an IRA, or transfer funds or investments from one IRA to another, if done correctly, it is not considered an IRA withdrawal.
Since there is no distribution of funds to you, the transfer is tax-free. There are subtle differences between what is considered an IRA rollover, and what is considered an IRA transfer. The important thing to know; with either one the funds must be deposited in the new account no longer than 60 days from the time they were withdrawn from the old one. Read some FAQs here.
Benefits of rolling over your money from a 401(k) to a self-directed IRA
By rolling over you avoid cashing out your 401(k) plan, which is very expensive. Cashing out of your retirement plan prematurely can cost you upto 45% of your investment, due to taxes and early withdrawal penalties. If you rollover your money from 401(k) into a self-directed IRA, you get greater control and wider choice of investment options.
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