[00:00:01] Speaker A: You're listening to PTC point of view, brought to you by preferred trust Company, the preferred custodian for all alternative investments. We're here to provide retirement savers like you with the tools you need to succeed. Need a confidence boost when it comes to investing outside of the stock market? Do you want the power to build a tax sheltered nest egg that will last through your golden years? You've come to the right place. Turn up your speakers and turn off cruise control because we're taking you on the alternate route to investing with your IRA.
[00:00:38] Speaker B: Welcome, listeners, to another episode of PTC Point of View. My name is Izzy Urizari. I oversee the marketing department here at Preferred Trust. Joining me today is the amazing Chris Trembley, director of operations. We're going to talk about a topic that I'm very excited to talk about today, which is qualified versus non qualified. And what does that mean? These are terms that we actually use every day here in the office, but we forget sometimes that not the everyday investor understands what that exactly means. So, Chris, let's just jump right into it. What does qualified and non qualified mean to you?
[00:01:14] Speaker C: All right, well, first, preferred trust company does specialize in self directed iras, so we really focus on the IRA side. Traditional Roth, Sep and simple iras. So these are qualified retirement plans. So qualified money basically refers to any funds in a retirement account, in iras already sitting in a retirement account. Iras, 401 ks, 403 bs, 457 plans, teacher savings plans, pensions. Those are qualified funds.
[00:01:44] Speaker B: Got it. What does non qualified then mean?
[00:01:47] Speaker C: So your non qualified funds are the funds sitting outside of your retirement account. So these are, you know, the funds you have in your checking account or your savings account, or maybe the cash you have underneath your pillow. I don't know. These are the funds that are non retirement account funds. Right. Non qualified.
[00:02:04] Speaker B: So let's just say I have $10,000 sitting in my savings account and I'm wanting to roll that over into a self directed IRA. Do I just transfer all of it over to you guys?
[00:02:17] Speaker C: So this is a really good question and something that's posed to us a lot. We do have a lot of people call us up and say the exact same thing. I have money in a savings account, a checking account, and I just want to transfer it to an IRA. And so you can't transfer non qualified funds to a retirement account. You can make a contribution to a retirement account. So you can already have an IRA established somewhere, or you can start one brand new from non qualified funds. But the IR's sets what we consider contribution limits. So those are the non qualified money, right, that you can put into a retirement account once per year. And for 2023, three the IR's says that if for traditional N. Roth Iras, we're going to kind of stick to those. Today, the contribution limit is 6500. So when you asked, can I take $10,000 out of my savings and put it in my IRA at preferred trust company, the answer is no.
If you have a sep Ira or a simple Ira, that may be possible.
There are additional contribution limits for those type or higher contribution limits for those type of accounts. But if we're strictly talking about pre tax, post tax retirement accounts, we're talking about the limit of 6500.
[00:03:34] Speaker B: Okay.
[00:03:34] Speaker C: All right. But if you're age 50 or over, there's a little caveat. You can extend that and add an additional thousand dollars. It's what the IR's calls a catch up contribution limit. So that moves it up to 7500. So there are limits. So you can't just take your money in your savings account. And we had a lady a couple weeks ago tell us that she sold a personal property, she made $25,000 and now she wants to put it in her IRA. And unfortunately, it doesn't work like that.
[00:04:00] Speaker B: What do you mean?
[00:04:01] Speaker C: Yeah, congrats on making money off of a property sale, but we can't do that.
[00:04:06] Speaker B: Got it. So basically what you said is we can't transfer over the example I gave of $10,000 completely over to the self directed IRA, but you can contribute up to x amount based on your age of that money. So that is one possibility.
[00:04:23] Speaker C: That's correct.
[00:04:23] Speaker B: Of us being able to do that.
[00:04:24] Speaker C: That's correct.
[00:04:25] Speaker B: All right, so let's jump more into understanding the qualified piece of it. Since we talked a little bit more about non qualified. You had said something about a 403 or something about a teacher. What is that?
[00:04:36] Speaker C: Teacher savings plan. Tsp. So that's set up specifically for teachers to save for retirement. So a lot of times you have to be careful. 403 B's, 401, teacher savings plans, some pensions, it all lies around whether you're actively employed on what the stipulations around that plan are. So it's super important before you start moving money around that you talk with your plan administrator specifically for those type of plans. It gets a little bit more complicated when it's not just an IRA to IRA direct transfer. So we recommend really speaking with your plan administrator. It also depends on if you've had a separation of service. Right. From the company or the plan that you're currently under. So that's important as well. There have been plans that even when separation of employment happens, there may be certain stipulations there where you have to stick with the plan for a certain amount of time.
[00:05:33] Speaker B: Really? Have you ever seen that before?
[00:05:35] Speaker C: We have seen that some government plans are like, some teacher savings plans are like that. We also have annuities that clients want to know. Well, I have an annuity. Can I transfer it? I have an annuity in my Ira. Can I transfer it to a self directed, unfortunately, the annuity has to be surrendered. Right. So there are maturity dates on annuities and you could end up paying a penalty for that. So all these things you want to make sure if you have a retirement plan that's not an IRA, that you make sure you understand the information in the plan agreement and the plan docs read those. They can be kind of complicated. So you probably want to reach out to your plan administrator to help you with that and to decipher whether or not that can be transitioned into an IRa.
[00:06:19] Speaker B: Well, let's talk about that a little bit. You said something really important, which is the plan documents and understanding what the entire 401K or retirement plan you're allowed to do. The one thing I did see one time since I worked here is can you roll over or transfer over a portion of your 401K when you're currently employed?
[00:06:42] Speaker C: That is going to be up to the employer, basically. So when the employer designs these plans for their employees, they put certain stipulations on those plans. Sometimes they do allow for that. They do allow for an in service transfer, if you will, while they're still actively employed. It's very rare, but it can happen. So it's important to have those conversations with whoever at your current employer helps administer. You know, usually it's an HR representative or someone in the human resources department that can help you kind of go through that. And then there's always a custodian of those plans, too, just like preferred trust company is a custodian. Most 401s you have a custodian associated with it. Maybe it's LPL financial, maybe it's principal group, but you can also reach out to them to help you understand your plan documents and what you're allowed to do while you're still actively employed.
[00:07:35] Speaker B: Well, that leads me to another question now, which is, are people able to contact their plan administrators? Right. As soon as, like, let's say they sever, like you had mentioned earlier, they had severed employment. Do they contact them and let them know what they're planning on doing? Or does preferred trust get involved in that situation?
[00:07:55] Speaker C: So with 401s or something, that's not a retirement plan, that's not an IRA, really preferred trust company. We can assist the client. We can be on the phone call if the client feels more comfortable. We can help know to ask what questions to ask. But really, those type of plans will not take direction directly from preferred trust company. Unlike an IRA to IRA transfer, in these situations, it really has to be the former employee that initiates that transfer or rollover. We consider really a rollover, if you will, while it's still sitting in that plan. Now, a lot of employers give former employees a certain amount of time to transition out of the 401K plan. Maybe it's 30 days, maybe it's 60 days, maybe it's 90 days. It all depends on how the employer originally set up the plan. But basically they will give the former employer options. They can set up a rollover IRA for the employee. A lot of times that happens with 401K plans set up at Fidelity. They'll set up a rollover IRA and automatically transfer those funds from the 401K over to a rollover IRA. So then it can be transferred into a self directed IRA.
So there are definitely stipulations and timelines that former employees need to be aware of when they leave employment.
[00:09:21] Speaker B: How does it work if somebody is wanting to roll over a 401K? Because I'm noticing this is occurring more is what about people who have a Roth 401k? So it just rolls over right into a Roth, self directed IRA, correct?
[00:09:35] Speaker C: Yeah. If the separation of employment has happened, yes. That's just Roth. To Roth like to like. Basically.
[00:09:42] Speaker B: And let's switch it up a little bit. What if I have a 401k that's traditional? So everything was pre taxed and now I'm at a certain point in my career that I'm like, let's move it over to Roth. How does all that work?
[00:09:57] Speaker C: So most of the time, while it's still sitting in the 401k, again, they're not going to do any kind of conversion for you.
[00:10:03] Speaker B: Okay.
[00:10:04] Speaker C: So what we do to assist the clients on our end is we will set up a traditional IRA. The client will apply for a traditional IRA, and then the funds will be rolled over from the traditional IRA, and then we will handle the conversion. Once it gets to us, the client has to fill out a bit more paperwork, if you will, an application for a Roth IRA and the conversion form that goes with it. And then we'll convert those funds. But normally, the outgoing or transferring plan will not do that conversion. It normally happens on our end unless they're staying within the plan. Right.
[00:10:42] Speaker B: Got it. Yeah, that makes sense.
[00:10:44] Speaker C: Yeah.
[00:10:44] Speaker B: Well, let's talk a little bit more about. Let's just keep going on the qualified path and let's talk about the IRA to IRA transfer. So we had talked a little bit about limits, but if. If I'm not mistaken, if you already have, let's say. Let's just say I have 150,000 over at TD Ameritrade and I'm wanting to put $100,000 into a self directed IRA. Is there any limits on my Ira to Ira transfer?
[00:11:06] Speaker C: No. IRA custodial to custodial. IRA to IRA transfer. No limitations on how many of those you can do. So if you've got an IRA set up at TD Ameritrade and you want to put it at preferred trust company, or even just a portion of it, you can do that. You can take that 150,000 that you have over at TD, and maybe you only want to take 100,000 of it and put it over at a self directed IRA. Give it a try. You can do that. And then later on you can choose to transfer additional funds, another 25,000, or close out that TD Ameritrade account and transfer all the leftover 50,000, whatever it is, whatever increments you want to. You just have to check and make sure you also understand the investment that you're looking and getting into when you put it in the self directed IRA. So once your self directed IRA is open and funded, most people know what type of investment they want to make. They need to make sure they put enough and transfer enough to cover that minimum investment. A lot of investment sponsors have minimum barriers to entry to make an investment with them. Could be 10,000, could be 50,000. Really, the investment sponsor designates that. So you just want to make sure you transfer enough so that you can choose the investment that you want to make.
[00:12:17] Speaker B: What you're saying is that there's no limits to how much somebody can transfer from an IRA to an IRA, because once again, we're going back to that word qualified. It is a qualified plan. So that's why we're allowed to do that.
[00:12:29] Speaker C: That's correct.
[00:12:30] Speaker B: Do I have to transfer the entire IRA account over to preferred trust?
[00:12:34] Speaker C: No, you do not. You can transfer whatever amount you want. Obviously, we have some minimums as far as balances. We have a dollar 500 minimum balance requirement. And then you need to transfer enough to make whatever investment you're looking at, we don't dictate that to you. You have to decide that based on the investment that you want to make.
[00:12:54] Speaker B: Okay, so let's say, once again, going back to the qualified stuff, let's say I have my account over at TD, and I have investments in stocks and bonds, mutual funds, whatever, and I'm wanting to transfer over assets over to preferred trust.
What should I do beforehand? Do I need to liquidate before, or can I just transfer over that and you guys handle the rest?
[00:13:15] Speaker C: So liquidation needs to happen first. What makes preferred trust company very unique in what we do in being a self directed custodian is that we only specialize in alternative investments. Right. So those are non publicly traded assets. So if you're in stocks, bonds, mutual funds in your account at TD Ameritrade or wherever it currently is, those are going to be, have to be liquidated first because we cannot do that. We are not licensed to do that. So we need to make it, put it in a liquid position while it's still at the other custodian, and then we transfer direct cash.
[00:13:49] Speaker B: All right, well, you heard that here live, folks. Make sure you liquidate. Don't just think your advisor or whoever's handling is going to just do that for you. You got to make sure you initiate that.
[00:13:59] Speaker C: And we can tell you every custodian is a little bit different. It's important to realize that, too. We do send, there's certain paperwork that we send to the transferring custodian, the outgoing custodian to make that transfer. The paperwork does indicate the client can indicate on the transfer if they want to liquidate certain assets in various amounts to move over. Sometimes the custodian will take our liquidation instructions on our paperwork. Other times they really require the client to call in and make that liquidation first. So what we run into sometimes is a client will fill out the transfer paperwork. They'll say, I want to transfer $25,000 over. We'll send the paperwork out to the, to the outgoing custodian, and they'll reject it because they'll say, well, this client only has $100 in cash. They haven't liquidated anything. Right. And so it makes the process, it can slow down the process. And that is super important to realize when you're trying to make an investment. A lot of these investment sponsors have their own deadlines, and if they don't receive your funds, you may miss out on the investment, which means you're missing out on potentially the income that you can earn off of that investment. If you're not getting in there. So it is important if you know you are ready to transfer x amount of dollars to your self directed IRA to make an investment. Make sure you liquidate the assets that you want to liquidate so that when we send our transfer paperwork, it is ready to go and there's no reason for the rejection to occur.
[00:15:29] Speaker B: All right, let's jump into the next topic that everybody loves to talk about, taxes. So let's go over another example. I have $25,000 in old 401K. I'm planning on transferring it over to preferred trust to open up a traditional self directed IRa. What tax documents am I going to get? Am I going to get something from my old 401K provider? Am I going to get something from you guys that prefer trust? What should I expect?
[00:15:55] Speaker C: So interesting. On a little bit different. If it's still sitting in a 401K, normally they're going to code it as a distribution out and then when it hits us, we're going to code it as a rollover. So you're probably going to receive a 1099 r from your four hundred one k and then you're going to get a 5498 from your new plan at preferred trust company and they will cancel each other out. It'll be for the exact same amount.
[00:16:22] Speaker B: What do you mean by that? Cancel each other out?
[00:16:23] Speaker C: So when you do your taxes, the IR's is going to see you had a 1099 for, let's say $100,000 from your 401K.
[00:16:30] Speaker B: Okay.
[00:16:30] Speaker C: And then you had a rollover into your IRA at preferred trust Company on that 54 98 for $100,000. So no taxation is happening because you did put it into a qualified retirement plan one to the other. But that's where the rollover is unique. That's where now some 401s will code it on the outgoing side as a rollover. So no taxation. But it all depends on the company processing the funds out. A little bit different from Ira to Ira. Now, if you have your IRA like we were talking about earlier at TD Ameritrade, you're transferring direct custodial transfer of 100,000. There's no tax documents coming from the outgoing side and really there's none coming from our side either. To designate any kind of transfer, you will still at form 5498 at the end of the year that shows the value of your IRA, but there's no taxation happening there.
[00:17:24] Speaker B: Interesting. So that's good for some people to know, especially those who are trying to file their taxes and are expecting something to come in and it's not, it won't be there.
[00:17:33] Speaker C: All right.
[00:17:33] Speaker B: Well, I think that's it for today, Chris. I think we went over a good amount of information for people to really understand qualified versus non qualified. And just to recap, qualified is anything that is held in a retirement account. So you have your 401s, your 403 B's, if you're a teacher, anything that's of that nature. And that also includes iras that are at, you know, any of the big box custodians, such as your TD Schwab's, fidelity's, all of those natures. And you're non qualified is pretty much everything you have under your mattress. Just kidding. But that includes, like your savings accounts or your checking accounts. And also just make sure that people understand that with non qualified, you are limited to what you can actually contribute, not rollover, because it's non qualified means it's a plan that is not a retirement account. Thanks a lot, Chris, for joining us today on PTC point of view. We look forward to our next episode and making sure that everybody out there understands what self directed iras are, what they can and cannot do, and how to best strategize their retirement plans.
[00:18:38] Speaker A: Thanks for joining us for another episode of PTC Point of view where retirement savers meets alternative investments. Know someone who's struggling with a retirement strategy? Tell them about our show. Can't wait for the next episode. To learn more, visit our
[email protected], or give us a call at 888992.
