How To Transfer Your SEP IRA To A Self-Directed IRA LLC Tax Free

Is your retirement account not working out for you the way you hoped? Or maybe you're just ready to kick it up a notch and have already heard about the amazing benefits of having a Self-Directed IRA LLC. The rumors are true: Self-Directed IRA LLCs let you take total control in your financial future and may give you the most investment flexibility and diversity of all the retirement options currently on the market.

Whatever your motivations, this article will tell you everything you need to know about SEP IRA transfers to a Self-Directed IRA LLC. We'll break the process down step by step, and also point out where you're going to want some help from the pros. Let's get moving.

SEP IRA Transfers to a Self-Directed IRA: The Basics

Usually a transfer from one IRA to another is actually performed between two separate banks or other institutions. But it is also possible to move funds back and forth from IRAs overseen by the same custodian or institution. Handled properly, you won't have to report this type of IRA transfer to the IRS. And even better, it can be absolutely tax-free.
In this scenario, you, as the IRA holder, will be directing the transfer. But you don’t actually receive the IRA assets. At least not into your hands personally. Instead, the transaction in completed by the sending and receiving  financial institutions for you.

Of course, you want your transfer to be tax-free and penalty-free, so you'll want to follow a couple of simple guidelines to ensure that. The main thing is that you must ensure that you do not personally receive the IRA funds in a transfer. Instead, the your newer financial institution will be the recipient of the funds. Write your checks or direct your wire transfers accordingly.

This is the point where the average investor might want to call in their dream-team cavalry. If you're not 100% certain what you're doing,  ask for help. A good retirement tax professional can virtually guarantee a tax-free and penalty-free transfer, which means more money in your pocket and therefore greater comfort and luxury in retirement.

How the SEP IRA to Self-Directed IRA Transfer Works

You may be wondering how this transfer will go down if you haven't created your Self-Directed IRA LLC. Well, it's actually fairly simple. You, along with the help of the professionals of your choosing,  will establish a new Self-Directed IRA account with the reputable custodian of your choosing. After getting your permission, the new institution will request the transfer of your SEP IRA assets from your former IRA custodian. It is only with this method that you'll be able to avoid all taxes or penalties.

Once the IRA funds are transferred to your new IRA custodian, they can place the old IRA assets into your new IRA LLC. Which means you, as manager of the IRA LLC, will have complete control over your retirement funds so you can invest them in anything you want, from cryptocurrency to real estate to tangible goods and more. And you're doing it all tax- and penalty-free.

Be Aware of the 60-Day Rollover Rule

You will have exactly 60 days after you get your rollover from  your original SEP IRA account to pool those funds into the new Self-Directed IRA LLC structure. This time period begins the day after the custodian gets the distribution.
This 60-day period is a rather strict rule. There are some rare flexibilities. Examples include if your expiration date falls on a federal holiday or weekend. In these cases, you will get one (and only one) additional business day.

If you’re receiving an eligible rollover distribution, you may opt to either rollover whatever you receive in part or in whole. It's up to you, but you'd be wise to get it taken care of well ahead of the 60 day cut-off point.

If you're under the age of 59.5, there's one final issue you definitely want to keep in mind for maximum savings. This is that any money eligible money that you choose not to rollover to the new IRA can count against you. It counts as part of your income for tax purposes, and if you choose to take it,  you will likely get you hit with the 10% early distribution withdrawal penalty. You'll want to color inside the lines of the method outlined above to ensure this doesn't happen to you. You'll have plenty of ways to express your inner investing artist once your Self-Directed IRA LLC is funded, but stick to the script for the transfer to avoid unnecessary penalties like this.

Our experts are here to make your life easier and your accounts fatter. So use them. If you at any point feel like you're in over your head, that's what CPAs, tax professionals, and attorneys are for. It's okay not to know everything, especially about retirement accounts. You're in good company with most of the world.

Thanks for reading, and I hope you understand the SEP IRA to Self-Directed LLC transfer process better now. Please feel free to keep the conversation going with any comments or questions below. 

Last Updated: 
October 29, 2017

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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