Many people struggle to keep all their retirement planning and financial information straight. From IRAs to 401(k)s and all points in between, it can get confusing at tax time or any other time of the year. That’s why it’s wise to consider - once you become fully vested in your employer 401(k), that is - the potential benefits of rolling the funds from your 401(k) program into a self-directed IRA (SD-IRA).

Why Would You Want to Make the Switch?

There are quite a few reasons to consider moving funds from your 401(k) retirement account into a self-directed IRA – especially if your IRA is what you would consider a checkbook control account or self-directed IRA LLC. These are just a few of the highlights.

• More control – You make the choices with a SD-IRA LLC and do not need the oversight of an account trustee or custodian.

• Wider range of investment options – You’re not limited to paper investments. In fact, you can make brick and mortar investments in real estate and businesses with your SDIRA.

• Easier diversification – Once again, you’re the one in the driver’s seat. You can make your SDIRA as homogenous or diverse as you’d like.

• Consolidates retirement investments – This makes for easier record keeping and allows you to have a better handle on your financial situation at any given time.

• Lowers fees – Administrative fees on 401(k) accounts can be lethal. SDIRAs, especially those where you have checkbook control, do not require the same degree of administration and, as a result, have fewer fees.

• Stability – When it comes to 401(k) plans, trustees and fees change at the blink of an eye and with little advance warning. This isn’t the case with SDIRAs. There’s a little more stability with the way things are done, reporting is required, etc. so you don’t have to worry about sudden, unexplained, or unexpected changes.

• Simplifies record keeping – Keeping accurate records is important, not only to help keep your own financial affairs in order, but also for the purpose of tax keeping and recording. Reducing the number of accounts you’re working with is usually a good thing if your goal is simplification.

• Eliminates penalties – There are penalties involved in cashing out altogether. However, rolling your 401(k) into an IRA doesn’t have the same penalties, making the money more immediately useful to you as an investment without the crippling penalties involved if you decided to take the money out and invest on your own.

Now that you know all the reasons why, you’ll be glad to know that the process is fairly simple. If you want to roll funds from your 401(k) into your self-directed IRA, the direct transfer method is the only way to go - in order to avoid risking a 20 percent loss of 401(k) funds, taxes on the 20 percent lost, and early withdrawal penalties of 10 percent if you’re under the age of 59.5.

All you need to do is notify the financial institution that holds your SDIRA account and the 401(k) plan custodian of your wishes to transfer the money into the IRA account, because the money is transferred directly to the retirement account. Not only is this a more efficient method of but it also eliminates the possible penalties of transferring funds through the withdrawal process.

Now you can sit back, relax, and wait for the transfer to take place (the process generally takes about a month). Once the money is live in your account, you can begin making active investments.