Self Directed SEP IRA - Company Recommendations????

Question

I'm in the process of evaluating two  Trust companies with San Francisco Bay Area offices  to convert my tradition SEP IRA into a Self Directed SEP IRA. I've narrowed my seach down to two companies.  One is IRA services, the other the Entrust Group. The fee structure is significantly  better with IRA Services but the Entrust Group offers more hands on help both setting up the account and  information on  real estate investment opportunities. I'm interested in using my funds for private money lending in deed of trusts. Please share you experieces if you have worked with either of these companies. Thank you !

Dmitriy Fomichenko · Answer

Scott, we have been using IRA Services with our IRA LLC clients since 2010 and had good experience with them. No personal experience with Entrust but few people I spoke with mentioned that they were not happy with them for various reasons... you'll have to do further research on them.

Since you are considering private lending you may find that it would be much more convenient, and cost effective to do that when you have checkbook control over your retirement account. Many of our Checkbook IRA clients using their accounts for private lending.

Now, since you are self-employed the best option for you would be truly self-directed Solo 401k plan. With this plan you don't need an LLC nor custodian, you get the checkbook control, minimize your cost, significantly higher contribution limits, ability to borrow from your account should you need to, and several other advantages. You owe it to yourself to evaluate this option before making a decision. I discuss the benefits of the Solo K and compare it with SDIRA on this blog post, hope it will be helpful:

http://www.biggerpockets.com/blogs/2810/blog_posts...

Brian Eastman · Answer

@Scott Raley

I would second what Dmitriy said exactly.  IRA Services does an excellent job, but if you have the opportunity to establish a Solo 401(k) it will be your best option - not only for purposes of self-directing the investments into private lending, but also as a more robust retirement plan than the SEP IRA.

Jeff S. · Answer

I third Dmitriy's motion, @Scott Raley, and have direct lending experience in CA with both IRA Services and also with an SD 401k.

Years ago, when we first started lending from our retirement plan we used a self directed IRA at IRA Services and were completely happy with them.  Even though we were modestly constrained by custodian approvals, we were still able to write loans fairly quickly.  I found them knowledgeable enough for our needs, which were few.  I also found them to be very cost competitive.

Before you select an IRA company, make sure they are a custodian and not simply an administrator.  All IRA's must use a custodian, and these are all highly regulated.  Those that are simply administrators must also use a custodian, though administrators are not regulated.  This cuts out an unsafe middleman, in my view.

You should also compare the fees, which is how these companies make their money, and these can be very significant.  Some IRA companies charge by the transaction and some by the asset value of your account. A few do both.  If you have a lot of cash to lend, you will likely be doing relative few transactions compared to say, flipping houses, where you might pay many subs each week.  In your case, lending, you want a custodian that charges by the transaction.  I found IRA Services very competitive in this regard.

You'll find as you do many loans that one of the names of the game is speed.  Being able to close fast is often worth money to a borrower and puts you at a competitive advantage.  The only way to do this quickly is with checkbook control.  You can get checkbook control by funding either a special purpose LLC with an SD IRA through the likes of IRA Services, or instead by rolling your retirement assets into a self directed 401k formed through one of the companies that specialize in these (Hint: Brian & Dmitriy).  SD 401k's do not require a custodian and can be managed by you directly, as the trustee.

One main difference between an SD IRA and SD 401k plan is that anyone with earned income can open a SD IRA and contribute between $5500 and $6500 annually in 2016, depending upon their age.  A SD 401k plan is maintained by your company.

So long as you and your wife are the only full time employees, and you have a payroll, a SD 401k allows you to shelter up to $53,000 each in 2016.  Not bad, and the rules for investing are very similar.  In this case, you would manage the investments as the trustees and have checkbook control.  Loans would be written in the name of the plan. There would be no fees, other than perhaps annually from the party that helped you set it up, as they keep your paperwork current.  Your CPA could help you determine a payroll that minimizes taxes and maximizes your annual contribution.

I agree with Brian's use of the word "robust." With the dwindling few business deductions allowed anymore, an SD 401k plan is also the most competitive and aggressive way to shelter income.  Lending, which is not particularly tax efficient, is a perfect use of this money.

Good luck, Scott.

Brian Eastman · Answer

Scott,

Yes, the SEP IRA can be rolled over to a Solo 401(k).

Here is the IRS Rollover Chart

The issue is not so much that someone said "let's make it Byzantine", but rather that the tax code relative to retirement plans is on several {mostly} parallel tracks, (individual, small business, larger business, for example) and they each evolve in bits and pieces over time.

Scott Raley · Answer

Thanks for your reply Brian. Someone did say I could convert a SEP- IRA into a solo 401K. Is that correct?  I have to say, this is extremely challenging to get the right information to make an informed decision. I think the lawyers had a field day putting these retirement programs in writing.

Brian Eastman · Answer

@Scott Raley

A corporation can sponsor a Solo 401(k), so long as you do not have any full time employees in that or any related business you control.

Unfortunately, while there are some great ways to contribute as Roth or convert tax-deferred funds to Roth status in a Solo 401(k), you cannot roll existing Roth IRA funds into a 401(K) plan as the tax code currently stands.

Scott Raley · Answer

Also, I have both a SEP- IRA and a Roth IRA. Can those be combined into one   Solo 401K account?

Scott Raley · Answer

I file a corportate return for my business and not a  schedule C. Dmirtriy you indicated in your link that I needed to file a schedule C in order to qualify for the Solo 401K.  Is that correct?

Justin Windham · Answer

@Scott Raley

Another vote for the Solo 401k here. Typically, if you're eligible for the 401k, it will offer you a better overall structure for your retirement investing than an IRA.

Brian Eastman · Answer

@Scott Raley

Yes, you should be able to do that.  If you were planning on making 2015 contributions, they will need to be made into the SEP before you do the rollover.

Self Directed SEP IRA - Company Recommendations????

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