Are My Funds Eligible for a Self-Directed IRA or 401(k)?
A self-directed IRA or Solo 401(k) is a great way to diversify your retirement savings into assets such as real estate, mortgage notes, private placements and the like. Investing in these types of assets requires a decent amount of capital, however, and that generally requires being able to transfer or roll over funds from an existing retirement plan.
Are your funds eligible to be rolled over to a self-directed IRA or Solo 401(k)? We’ve outlined some of the basic points so you can be sure.
One of the key things to keep in mind is that a self-directed IRA or 401(k) is no different than any other retirement plan when it comes to the back-end issues of compliance & reporting, rollovers, contributions, etc. The business model of investing with the plan is different, but the plan itself is just an IRA or 401(k) treated the same as any other.
Can I Move My Funds?
The first thing to ensure is whether the funds you intend to self-direct are eligible to be moved at all. In some situations, your funds may be locked into a current retirement plan and ineligible for transfer.
IRA
- Any IRA will be eligible for transfer. This includes Traditional, Rollover, Roth, SEP and SIMPLE IRA plans as well as inherited IRA’s. Whether various types of IRA are compatible and able to be consolidated is another issue covered later.
Former Employer Plan
- A qualified employer plan from a previous job will be able to be rolled over to a new plan. This includes 401(k), 403(b) 457, profit sharing, and pension plans as well as most state and federal government retirement plans.
Current Employer Plan
- Funds in a current employer 401(k) or similar qualified plan may not be able to be transferred.
- The tax code allows for “in-service distributions” whereby you can remove funds from a current plan while still employed. Most plan administrators, however, design their plans with only limited options for such in-service distributions.
- If you are still working with a company and have reached retirement age of 59 ½, a plan has to allow for an in-service distribution.
- There may be other factors such as length of employment, age of a threshold lower than 59 1/2 , etc. under which you can take an in-service distribution, but such flexibility is not common.
- In some cases, you may have eligibility for an in-service distribution, but only on the portion of your savings that has been fully vested.
- Funds you may have rolled into a current employer plan from a prior plan should be eligible for a rollover.
- Check, with your HR department or plan administrator to determine if your plan offers in-service distributions and if so, if you are eligible.
SIMPLE IRA (less than 2 years old)
- A SIMPLE IRA can be transferred to another tax-deferred IRA if the account has been in existence for more than 2 years. If a SIMPLE IRA is less than 2 years old, it can be transferred, but only to another SIMPLE IRA. You can establish a self-directed IRA as a SIMPLE IRA.
Are My Funds Compatible?
If you have multiple different existing retirement plans, it is important to ensure they are compatible with each other and can be consolidated.
For the most part, funds that are held by the same owner and have the same tax status can be consolidated. Following are a few common examples:
Traditional IRA and Old 401(k) Plan:
YES – Both plans are tax-deferred and accessible for transfer, so they could both be transferred to a new IRA/401(k).
Roth IRA and Old 401(k) Roth Sub-Account:
YES – Both plans have Roth status and are accessible for transfer. Both could be transferred to a new Roth IRA.
SEP IRA & Traditional IRA:
YES – Both are tax-deferred. These accounts could be consolidated into a new Traditional IRA, SEP IRA, or Solo 401(k).
Traditional IRA and Roth IRA:
NO – These accounts have different tax status and cannot be combined.
IRA of Husband and Wife:
NO – These accounts have different owners and cannot be combined.
Traditional IRA and Inherited Non-Spousal Traditional IRA:
NO – The inherited account has to be maintained separately as it will be subject to minimum distribution requirements.
IRA Specific Considerations
IRA accounts are generally more flexible when it comes to transfers and rollovers. So long as funds are eligible for transfer and of the same ownership and tax treatment, they can be transferred into a single new self-directed IRA. The only exception is a SIMPLE IRA, which must be 2 years old before it can be transferred to a tax-deferred IRA other than another SIMPLE IRA.
Solo 401(k) Specific Considerations
A Solo 401(k) plan can hold both tax-deferred funds and Roth funds. Tax deferred funds from any eligible prior employer plan or IRA can be rolled over into a Solo 401(k) plan. When it comes to Roth funds, however, only the Roth sub-account of a prior employer 401(k) can be rolled over into a new Solo 401(k). An existing Roth IRA may not be rolled over into a Solo 401(k).
Within a Solo 401(k) it is possible to hold separate accounts for a husband and wife if both are employed by the company through which the plan is sponsored. While the funds are not “combined”, and must be tracked, valued, and reported separately, it is possible to combine these two separate accounts for purposes of making investments.
IRS Rollover Chart
Following is the IRS provided chart illustrating eligible rollover paths between plans.
Our team of consultants at Safeguard Advisors are experts on the topic of retirement plan rollovers. If you have questions about your situation, please feel free to contact us.
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Quick answers to common questions
We’ll take you through a simple, step by step process designed to put your investment future into your own hands…immediately. Everything is handled on a turn-key basis. You take 100% control of your Retirement funds legally and without a taxable distribution.
YES! In 1974, Congress passed the Employee Retirement Income Security Act (ERISA) making IRA, 401(k) and other retirement plans possible. Only two types of investments are excluded under ERISA and IRS Codes: Life Insurance Contracts and Collectibles (art, jewelry, etc.). Everything else is fair game. IRS CodeSec. 401 IRC 408(a) (3)
It’s actually pretty simple. Early on, regulators let the securities industry take the lead in educating the public about retirement accounts. Naturally, brokers and banks promoted stocks, bonds, and mutual funds—giving the impression that those were the only allowed investments. That was never true... and still isn’t. You can probably guess why they kept the rest under wraps.
It is possible to use funds from most types of retirement accounts:
- Traditional IRA
- Roth IRA
- SEP IRA
- SIMPLE IRA
- Keogh
- 401(k)
- 403(b)
- Profit Sharing Plans
- Qualified Annuities
- Money Purchase Plans
- and many more.
It must be noted that most employer sponsored plans such as a 401(k) will not allow you to roll youraccount into a new Self-Directed IRA plan while you are still employed. However, some employers will allow you to roll a portion of your funds. The only way to be completely sure whether your funds are eligible for a rollover is by contacting your current 401(k) provider.
A Solo 401(k) requires a sponsoring employer in the format of an owner-only business. If you have a for-profit business activity – whether as your main income or as a side venture – and have no full-time employees other than potentially your spouse, your business may qualify. The business may be a sole-proprietorship, LLC, corporation or other entity type.
A self-directed retirement plan is a type of IRA or 401(k) that gives you greater control over how your retirement funds are invested. Unlike traditional accounts held at banks or brokerage firms that limit you to stocks, bonds, and mutual funds, self-directed plans allow you to invest in a wide range of alternative assets including real estate, private businesses, precious metals, cryptocurrency, and more.
These plans still follow the same IRS rules and maintain the same tax-deferred or tax-free benefits as conventional retirement accounts. The difference is simply in how and where you choose to invest.
No. Moving to a self-directed IRA or Solo 401(k) does not trigger any taxes, as long as your funds are eligible for rollover.
Self-directed retirement plans maintain the same tax-advantaged status as traditional plans offered by banks or brokerage firms. The key difference is flexibility—our plans are designed to give you greater control and allow for a wider range of alternative investments beyond stocks, bonds, and mutual funds.
A prohibited transaction is any action between your retirement plan and a disqualified person that violates IRS rules and can lead to serious tax consequences. Under IRS Code 4975(c)(1), prohibited transactions include:
- Selling or leasing property between your plan and a disqualified person Example: Your IRA cannot purchase a property you already own.
- Lending money or extending credit between the plan and a disqualified person Example: You cannot personally guarantee a loan your IRA uses to buy real estate.
- Providing goods or services between your plan and a disqualified person Example: You can’t use your personal furniture to furnish a rental property owned by your IRA.
- Using plan income or assets for the benefit of a disqualified person Example: Your IRA cannot buy a vacation home that you or your family use.
- Self-dealing by a fiduciary (using plan assets for their own benefit) Example: Your CPA shouldn't loan your IRA money if they’re advising the plan.
- Receiving personal benefit from a deal involving your IRA's assets Example: You can’t pay yourself from profits your IRA earns on a rental.
If a transaction doesn’t clearly fall within the allowed guidelines, the IRS or Department of Labor may review the situation to determine if it qualifies as a prohibited transaction.
Disqualified persons are individuals or entities that are prohibited from engaging in certain transactions with your IRA or 401(k). Doing so could trigger a prohibited transaction, which may result in taxes and penalties.
Here’s who is considered a disqualified person:
- You (the account holder)
- Your spouse
- Your parents, grandparents, and other ancestors
- Your children, grandchildren, and their spouses
- Any advisor or fiduciary to the plan
- Any business or entity owned 50% or more by you or another disqualified person, or where you have decision-making authority
These rules exist to prevent self-dealing and ensure your retirement plan remains in compliance with IRS regulations.
(Reference: IRC 4975)
Understanding and following these rules can be tricky, but it’s very doable. The best way to stay compliant is to work with professionals who specialize in self-directed retirement plans. They can help you navigate IRS guidelines and avoid prohibited transactions.
If an IRA holder is found to have engaged in a prohibited transaction with IRA funds, it will result in a distribution of the IRA. The taxes and penalties are severe and are applicable to all of the IRA’s assets on the first day of the year in which the prohibited transaction occurred.
Yes. While self-directed retirement plans allow for a wide range of investments, there are a few important restrictions.
You cannot invest in collectibles or life insurance contracts, and you must avoid prohibited transactions—activities that benefit you personally rather than the retirement plan. These include things like buying or selling property to yourself or family members, using plan assets for personal gain, or self-dealing in any way.
Violating these rules could cause your entire IRA to lose its tax-advantaged status. To protect your account, it’s essential to work with professionals who understand IRS regulations and can help you stay compliant.
This is a common misconception. In many cases, professionals may simply be unfamiliar with self-directed retirement plans, as they fall outside their usual scope of work. CPAs and tax preparers are trained to file taxes, not necessarily to advise on alternative retirement strategies. Financial advisors and brokers often work for firms that focus on traditional investments like stocks and mutual funds—and may not benefit from or support alternative options like real estate or private lending.
Self-directed retirement investing is legal under IRS rules—but like any specialized area, it requires working with professionals who understand how it works.
The IRS has rules in place to make sure your IRA is used only for the exclusive benefit of the retirement account—not for personal gain or to help family members. These rules can get complicated because there are many ways a conflict of interest can occur, even unintentionally.
For example, if your IRA buys a house and rents it to your mother, you might be reluctant to evict her if she stops paying rent. That emotional connection creates a conflict between what’s best for your IRA and your personal relationships, something the IRS aims to prevent.
These rules help ensure your retirement account stays compliant and protected. (See IRC 408)
Yes. Most tax-deferred retirement accounts—such as Traditional IRAs, old 401(k)s, 403(b)s, and TSPs—can be rolled over into a self-directed IRA or Solo 401(k), depending on your eligibility. Roth IRAs cannot be rolled into these accounts.
You can contribute directly from earned income, subject to annual IRS contribution limits. The method and amount depend on the type of plan you have (e.g., Solo 401(k) vs. IRA).
To take a distribution, you'll request funds through your custodian or plan administrator. Distributions may be taxable depending on your account type and age. Early withdrawals may be subject to penalties.
For 2025, the Solo 401(k) max contribution limit is $81,250 if age 60-63, $77,500 if age 50-59 or 69+, and $70,000 if under 50. Traditional and Roth IRAs have a limit of $7,000 ($8,000 if age 50+). Limits are subject to IRS adjustments.
Yes. IRA contributions are typically due by your personal tax filing deadline (e.g., April 15). Solo 401(k) contributions follow your business tax filing deadline, including extensions.
IRS reporting requirements vary depending on the type of self-directed retirement plan you have. Here’s a quick breakdown of what you need to know
Please note: Our team can help you understand what’s required for your specific account, but we don’t provide tax or legal advice. We always recommend working with a qualified tax professional to ensure full IRS compliance.
Self-Directed IRA (Traditional or Roth)
- Form 5498 – Filed by your custodian each year to report contributions, rollovers, and the fair market value (FMV) of your account.
- Form 1099-R – Issued if you take a distribution or move funds out of your IRA.
- Annual Valuation – You'll need to provide updated FMV for any alternative assets held in the account, such as real estate or private placements.
Solo 401(k)
- Form 5500-EZ – Required if your plan assets exceed $250,000 as of year-end. Must be filed annually by the plan participant.
- Form 1099-R – Required if you take a distribution or roll funds out of the plan.
- Contribution Tracking – Keep records of employee and employer contributions. These are not filed with the IRS but may be needed for tax reporting or audits.
SEP IRA
- Form 5498 – Filed by your custodian to report contributions and FMV.
- Form 1099-R – Filed by your custodian. Issued for any distributions.
- Employer Contributions – Must be reported on your business tax return (and on employee W-2s, if applicable).
Health Savings Account (HSA)
- Form 5498-SA – Filed by your HSA custodian to report contributions.
- Form 1099-SA – Filed by your HAS custodian. Issued for any distributions.
- Form 8889 – Must be included with your personal tax return to report contributions, distributions, and how funds were used.
