SDIRA Advice Roth vs Traditional

[Mariah Pierce]

I would like to move some of my retirement money to a SDIRA account. I have about $25K in Roth and $80K in traditional. Is Roth or traditional better to move? I know the market is starting to drop and wondering if it is even the right time to move. Thanks in advance!

[Ricky A.]

@Mariah Pierce The "better" option between Roth vs Traditional for your SDIRA will be subjective and situational.  Two things that I would consider are 1) what type(s) of investments do you plan acquire (including return expectations and any investment minimums) and 2) the particulars of your SDIRA platform.

For example, if you plan to invest only in "financial-type" assets such as mortgage notes, private or hard-money lending, and maybe even syndications (basically just dollars out-and-in from your perspective), Roth vs Traditional may not matter much (outside the obvious tax differences when it comes to withdrawing). However, if you plan for the IRA to own real estate directly, I would personally lean toward having that in a Roth. Why? I know this would be a ways away, but Traditional would be subject to RMDs which could cause a forced sale of real estate at that time (if there isn't a large enough cash balance to cover the RMDs). In general, the Roth has way more flexibility due to this one fact. Also, if you knock it out the park with your investments, the Roth should be more efficient in passing the assets to your heirs.

Investment minimums should also be considered.  Many syndications and private funds may have minimums that are higher than $25K. With only 25K in the Roth, you may not have enough to invest in some of these funds right now. Moving the Traditional may give you more options.  This may not matter if you have investment options that have lower requirements or if you're going to write your own notes and the $25K range makes sense.  Also, there is the option of converting some or all of the Traditional to Roth to give you a bigger Roth balance to work with.

Thinking about the SDIRA platform, I wouldn't move money until I am reasonably ready to put that money into investments.  My SDIRA platform doesn't currently have direct access to traditional market investments (e.g., to stock/bond trading accounts), so any uninvested cash I have will just sit there not earning anything.  Some platforms may have direct access to stock/bond/money market accounts where you could park idle cash (but even then, there may be additional fees as money moves back and forth).  Perhaps having checkbook control could be a way around this, but I haven't been bold enough (or had the need) to explore this yet.  Instead, I've just transferred amounts out of my non-SD Roth into my SD Roth as needed to fund my upcoming investments.

HTH