Self-Directed IRAs (SDIRAs) offer account holders the flexibility to invest in alternative assets such as real estate, private equity, and more—assets that aren’t typically available in a traditional retirement account. But before you can make your first investment, your Self-Directed IRA needs to be funded.
Whether you're moving funds from another account or making annual contributions, understanding the different ways to fund your SDIRA is essential. In this post, we’ll break down the three primary funding methods—transfers, rollovers, and contributions—so you can get started with confidence.
Understanding the Basics of SDIRA Funding
Funding your SDIRA is the first step toward diversifying your retirement plan with alternative investments. Each funding method—transfer, rollover, or contribution—has different rules based on IRS guidelines and the type of account you're moving money from.
Mainstar Trust, as a self-directed IRA custodian, facilitates these transactions, ensuring your IRA account is properly set up and maintained. While we don’t provide investment advice or recommend providers, we’re here to support the account setup and funding process every step of the way.
Option 1: Transfers
A transfer is a tax-free, penalty-free way to move funds between two like-kind IRA accounts—such as from one Traditional IRA to another Traditional IRA.
Key Features:
- Can be done any number of times per year
- Funds are moved directly between financial institutions
- No tax withholding, reporting, or IRS limits
- Common between Roth IRAs, Traditional IRAs, SEP IRAs, and SIMPLE IRAs (after two years)
Transfers are ideal for those who already have an IRA and want to open a self-directed account to expand their investment options without triggering any tax consequences.
Option 2: Rollovers
A rollover involves moving funds from an employer-sponsored retirement plan (like a 401(k), 403(b), or Thrift Savings Plan) into a self-directed IRA.
There are two types:
- Direct Rollover: Funds are moved directly from your retirement plan provider to your SDIRA custodian (tax-free and not reported as income).
- Indirect Rollover: You receive the funds personally and must deposit them into your IRA within 60 days to avoid taxes or penalties. Only one indirect rollover is allowed per 12-month period.
Things to Keep in Mind:
- Be aware of RMDs (Required Minimum Distributions) if you're over age 73
- Early distributions may trigger penalties unless part of a qualified rollover
- Review IRS rules for tax-deferred vs. taxable rollovers
Rollovers can be a strategic move when changing jobs, retiring, or simply consolidating accounts.
Option 3: Contributions
If you're eligible, you can fund your self-directed IRA through annual contributions. These are subject to IRS contribution limits and income thresholds depending on your type of IRA and filing status.
Contribution Limits for 2026 (subject to IRS changes):
- Traditional IRA & Roth IRA: Up to $7,500
- Catch-up Contributions (age 50+): Additional $1,000
- Must have earned income
- Contributions must be made by the tax filing deadline (typically April 15)
Contribution Rules Vary by IRA Type:
- Traditional IRA Contributions may be tax deductible, depending on income and participation in a workplace retirement plan.
- Roth IRA Contributions are made with after-tax dollars and grow tax-free.
- SEP IRAs and SIMPLE IRAs have higher contribution limits and are available to small business owners and self-employed individuals.
Always ensure you’re working within the IRS limits for annual contributions, and keep records of your deposits for your tax return.
Common Investment Options for a Self-Directed IRA
Once your SDIRA is funded, you can begin making IRS-approved investments in a wide variety of alternative assets, such as:
These types of investments can offer diversification, potential for higher returns, and the ability to tailor your retirement strategy to your financial goals.
Know the Rules: Due Diligence and Prohibited Transactions
As the IRA account owner, you’re responsible for conducting due diligence on all investment options and avoiding prohibited transactions. The IRS restricts certain dealings with disqualified persons, such as family members or personal businesses, and prohibits the purchase of life insurance or collectibles within an IRA.
Mainstar Trust ensures your SDIRA remains compliant with IRS requirements, but we encourage all clients to seek a fiduciary, tax professional, or financial advisor to assess potential risks before investing.
Ready to Get Started?
Funding your Self-Directed IRA through a transfer, rollover, or annual contribution is your gateway to a more flexible, tax-advantaged retirement plan. Whether you’re investing in real estate, precious metals, or private equity, Mainstar Trust can help you establish a secure foundation with custodial support tailored to your needs.
Contact our team at Mainstar Trust today to open and fund your Self-Directed IRA. We’re here to help you take control of your retirement journey—on your terms.