Most people have a 401(k) sitting at an old job. Moving it into a self-directed IRA puts you in charge of where it goes. Done right, it costs you nothing in taxes.
Why people make the move
- More choices. A 401(k) usually offers a short list of funds. A self-directed IRA can hold real estate, private loans, and mortgage notes.
- One place for your money. Old 401(k)s from three different jobs are hard to keep track of. Moving them into one IRA makes life simpler.
- Fees you can see. 401(k) fees are often buried. Self-directed custodians charge set fees you can compare up front.
- Your timing, not the plan's. Employers can change plan rules, fund lists, and providers. Your IRA follows your plan.
Can you roll yours over?
- Old jobs: Yes. Once you leave an employer, you can usually roll that 401(k) out.
- Your current job: Maybe. Some plans allow an "in-service" rollover, often after age 59½. Ask your plan administrator.
- Only vested money. Employer contributions you haven't fully earned yet stay behind.
- Roth 401(k) money goes into a Roth IRA. Regular 401(k) money goes into a traditional IRA.
Always use a direct rollover
This is the one rule that matters most. In a direct rollover, the 401(k) sends the money straight to your new IRA custodian. You never touch it, and nothing is taxed.
If the 401(k) cuts the check to you instead, two things happen:
- The plan must hold back 20% for taxes.
- You have 60 days to put the full amount into an IRA, including the 20% you never received. Whatever you don't replace counts as a withdrawal. That means income tax, plus a 10% penalty if you're under 59½.
A direct rollover avoids all of that.
How to do it, step by step
- Open a self-directed IRA with a custodian that allows private loans and notes.
- Call your 401(k) plan and ask for a direct rollover. Ask for their forms and the custodian's exact payee name and mailing or wire details.
- Send the paperwork. Your new custodian will often help fill it out.
- Wait. It usually takes a few weeks. Check with both sides if it drags on.
- Invest. Once the money lands, you direct the IRA into the investments you choose.
One more option to know about
Some people set up a "checkbook control" IRA, where the IRA owns an LLC that you manage. It can make investing faster, but you're still required to have a custodian, and you take on more of the paperwork and more ways to break the rules. It's not necessary just to lend on notes.
Once your money is in a self-directed IRA, it can lend on first mortgage notes and collect interest inside the account. See how IRA lending with LJH works.
General education, not tax, legal, or investment advice. IRA and 401(k) rules are strict and change over time. Talk with your plan administrator, custodian, and a CPA or tax attorney before you move money. All investing has risk, including loss of principal.