Self Directed IRA Custodians

[Corey Hill]

I've decided to use a few old 401k and IRA accounts to fund some real estate deals. I know that I will need a self directed IRA custodian but thus far I haven't found a company that looks trustworthy. If anyone has had a good experience with their custodian, can you please name the company and explain why you like them. Looking for someone that can move quickly to write checks when I have a deal.

Thanks 

[Brian Eastman]

@Corey Hill

To be clear, your IRA is not funding your deals. The IRA is the investor in the deal. There are very strict rules about keeping IRA investments at arm's length and exclusively for the benefit of the IRA. Your language is vague about your intentions, but wanted to make sure you understand this key point.

If your IRA is investing in deals that require any frequency of transactions or transactions that are time sensitive, then you will want a plan that offers you checkbook control. Waiting 3-5 days for a custodian to process a transaction and issue funds, and paying per-transaction fees (often expedited) will be impractical to say the least.

Checkbook control can be achieved by having an IRA with a self-directed custodian make a single investment into a legal entity such as a LLC or statutory trust where the IRA is the owner and you can act as the signer. You then can deploy the capital into transactions directly via the legal entity without need for custodian interactions.

If you are self-employed and have no full time employees, there is an option for a Solo 401(k) that also provides checkbook control.

As to your "trustworthy" comment, be advised that all IRA custodians are regulated in the same fashion. The specialty institutions that handle non-traditional investments are generally going to be smaller than the big Wall St. players - who just don't do this type of processing. These smaller custodians still need to jump through all kinds of regulatory hoops focused on fiduciary responsibility and compliance with state and federal banking laws. While in cash with the custodian prior to investing, your funds will be FDIC insured to $250K just like any other bank/IRA account.

Another key difference between custodians and the specialty advisory firms that create checkbook plans is that custodians by rule are very limited in terms of guidance they can provide.  They are passive processing agencies.  Quality providers of checkbook plans will include access to expert guidance with respect to compliance with IRS rules.