Yet another self directed ROTH ira question

[Robert D.]

Hey guys, 

Hope no-one minds but Im just going to brain vomit here. There is too much in my head and have alot of questions that I think im starting to hit analysis paralysis but on the other hand ive been researching alot and picking up on more and more as i go. I'm wanting to start a Roth IRA but recently learned of a self directed Roth and how i can multiply investments and from what i have gathered it seems there are specific places one can get a SD ROTH IRA in other words not every bank can set this up. I have seen the list of custodians here on BP. How expensive is it to maintain an SD ROTH thru a custodian?

Merrill Edge in their ROTH application process asks if you want a Self directed ROTH? Can anyone confirm that this is a true SD ROTH? I have searched over and over again and cant find anything on Merrill having a true SD Roth.

Even tho i would be opening a fresh new ROTH, my plan is to be able to purchase RE very soon hopefully when the market turns around but wont be able to contribute enough into it even tho i will max out the Roth every year to fund even a down payment. Im aware of the non-recourse and the ROTH IRA/LLC way. I do have the funds to purchase outright but wouldn't mind using some leverage. If going the LLC way am i able to use ANY bank account i wish to fund a property purchase thru the LLC? I think i read somewhere that i could use any bank account of my choosing not sure how true that is.

I live in the land of milk and honey, California. I have a regular "9-5" but am a part time employee. I own 2 rentals free and clear. I have an inactive General Contractor license but lost my crew and the business during the 2008 crash. I also read somewhere i could be considered an active investor(since i do everything for my rentals) and therefore might be considered a business owner in the hopes of having the opportunity at a SOLO 401K vs having passive income but also opening myself up to self employment tax? And if i was a business owner(with the rentals) would i be able to do a solo 401K? Am i better off staying in the passive income universe?

I apologize for the scatter brained post. Any advice from the gurus will be greatly appreciated?

[Brian Eastman]

@Robert D.

A truly self-directed Roth IRA capable of investing in real estate is not something offered by mainstream firms. By "self-directed", Merrill means you pick the stocks, but certainly not real estate. They do not have the capacity or training to process such investments, and more importantly, a way to earn commissions on real estate. Such plans are the niche of specialty providers. Costs vary considerably based on the service structure and type of firm.

The maximum you can put in a Roth IRA is $6000 if you are under age 50 or $7000 if 50 or older. That capacity can be further limited or even eliminated if you are a high income earner.

Most folks who establish a self-directed IRA for investing in real estate are starting with a rollover from prior savings, such as a 401(k) from a former employer. Starting from scratch will not get you to real estate any time soon. Based on the underwriting limitations of banks that do non-recourse loans, you would need at least $50-60K in the account before being able to mortgage finance a property. You could potentially start doing crowdfunds or private lending with smaller amounts of capital, but even then it will take several years worth of new contributions to make the cost in both time and capital to setup and operate such a plan worthwhile.

Services performed as a general contractor would potentially qualify you for a Solo 401(k), which with its higher contribution limits would help you accumulate savings much more quickly.  Passive income from rentals does not qualify to sponsor a retirement plan.

I would suggest a conversation with a licensed fee only financial planner to discuss and develop a strategy and learn more about how tax-sheltered retirement plans work, and perhaps establishing a low-cost IRA or Solo 401(k) with someplace like Fidelity or E*Trade where you can start accumulating some capital. Please do not use Merrill. They will make it next to impossible to move your money somewhere else when you are ready to do so.