Old 401K Rollover to Self Directed IRA

Are you considering what to do with your old 401K? One option worth exploring is a rollover to a self-directed Individual Retirement Account (IRA). In this article, we will delve into the process of rolling over an old 401K to a self-directed IRA, along with its benefits and considerations.


6/17/20234 min read

two blue beach chairs near body of water
two blue beach chairs near body of water


When you change jobs or retire, you often face a decision about what to do with your employer-sponsored retirement plan, such as a 401K. One possibility is to leave the funds in the existing account, but another option is to roll over the funds into a self-directed IRA. This can offer more control over your investments and potential tax advantages.

Understanding 401K Rollover

A 401K rollover refers to the process of moving funds from a former employer's retirement plan, such as a 401K, to another retirement account, such as an IRA. Rollovers can be done directly or indirectly. A direct rollover involves moving the funds directly from one account to another, while an indirect rollover requires you to receive the funds personally and then deposit them into the new account within 60 days.

The Benefits of a Self-Directed IRA

A self-directed IRA allows you to take control of your retirement investments. Unlike traditional IRAs, which typically limit investment options to stocks, bonds, and mutual funds, a self-directed IRA expands the range of investments to include real estate, private equity, precious metals, and more. This flexibility can provide opportunities for diversification and potentially higher returns.

Additionally, a self-directed IRA offers tax advantages. With a traditional IRA, contributions may be tax deductible, and earnings grow tax-deferred until withdrawal. Roth IRAs, on the other hand, are funded with after-tax dollars, but qualified withdrawals are tax-free. It's important to consult with a financial advisor or tax professional to understand the specific tax implications of a rollover and the type of IRA that suits your needs.

Steps to Rollover an Old 401K to a Self-Directed IRA

Research and Choose a Self-Directed IRA Provider

Before initiating a rollover, it's crucial to research and selects a reputable self-directed IRA provider. Look for a provider that offers a wide range of investment options, excellent customer service, competitive fees, and a user-friendly online platform.

Open a Self-Directed IRA Account

Once you've chosen a provider, you'll need to open a self-directed IRA account. This typically involves completing an application, providing identification documents, and designating beneficiaries.

Request a Direct Rollover

Contact your former employer's retirement plan administrator and request a direct rollover to your self-directed IRA account. They will provide you with the necessary paperwork to initiate the transfer. It's essential to ensure that the funds are transferred directly to avoid any tax penalties or withholding.

Choose Your Investments

Once the funds are transferred to your self-directed IRA, you can start selecting your investments. Consider your investment goals, risk tolerance, and diversification strategies. Conduct thorough due diligence on potential investments, as self-directed IRAs offer greater freedom but also require careful evaluation.

Considerations and Potential Pitfalls

While rolling over an old 401K to a self-directed IRA has its advantages, it's important to be aware of potential considerations and pitfalls.

Tax Implications

A direct rollover from a 401K to a traditional IRA is generally a tax-free event. However, if you opt for an indirect rollover, the funds will be distributed to you personally, and you'll have 60 days to deposit them into your self-directed IRA. Failure to complete the deposit within this timeframe can result in taxes and penalties. It's crucial to follow the rollover rules to avoid any unwanted tax consequences.

Prohibited Transactions

With the increased investment options offered by a self-directed IRA comes the responsibility to understand and abide by the rules. Self-directed IRAs have specific restrictions on transactions with disqualified persons, such as yourself, family members, and certain business entities. Engaging in prohibited transactions can lead to severe penalties and potentially disqualify the entire IRA.

Due Diligence in Investment Selection

While a self-directed IRA provides the freedom to invest in a wide range of assets, it's essential to conduct thorough due diligence before making investment decisions. Assess the risks, potential returns, and long-term viability of any investment. Consider consulting with financial professionals or seeking expert advice to make informed choices.


Rolling over an old 401K to a self-directed IRA can offer more investment control and potential tax advantages. By conducting thorough research, choosing a reputable self-directed IRA provider, following the rollover process correctly, and making informed investment decisions, you can take charge of your retirement savings and potentially enhance your financial future.


Q1: Can I roll over a Roth 401K to a Self Directed IRA? A: Yes, you can roll over a Roth 401K to a self-directed IRA. However, it's essential to understand the tax implications and eligibility requirements associated with such a rollover.

Q2: What happens if I don't roll over my old 401K? A: If you don't roll over your old 401K, you may have limited control over the investments and fewer options for managing your retirement savings. Consult with a financial advisor to evaluate your alternatives.

Q3: Are there any restrictions on the types of investments I can make with a Self Directed IRA? A: While self-directed IRAs offer greater investment flexibility, certain types of investments are prohibited, such as life insurance, collectibles, and transactions with disqualified persons.

Q4: How long does it take to complete a 401K rollover to a Self Directed IRA? A: The time required to complete a 401K rollover to a self-directed IRA can vary. It depends on factors such as the responsiveness of the involved parties, administrative processes, and the complexity of the investments chosen.

Q5: Can I combine multiple 401K accounts into one Self Directed IRA? A: Yes, you can combine multiple 401K accounts into one self-directed IRA. This can simplify management and potentially provide more investment opportunities. Consult with your self-directed IRA provider to understand the specific requirements and procedures.