IRA Custodian recommendation

[Daniel Guillermo]

I have decided to open a self-directed IRA to invest in rental property. I was wondering if anyone could recommend an IRA custodian that I could use. I'd like one that is easy to work with and has reasonable fees. I noticed some have transaction fees while some have flat fees but I'm not sure which is better. It seems like transaction fees can get pretty high if you have multiple leveraged properties in the IRA. I have done some searching on this forum and see some have used UDirect or Equity Trust, are those my best options? Who do you recommend and why?

[Jeff S.]

All of these companies will hold your IRA money, disburse it into deals at your request, and administer the paperwork for you. In theory, they will help protect you from making a dumb mistake and violating retirement plan laws. Most of them provide education and can become reliable resources to answer your questions. Some charge by the number of deals you do, some by the total value of your account, and some by both.

After you’ve narrowed down your selection to those with great service and the education you need, you ought to do a spreadsheet trade to determine the lowest cost solution. That is, if you intend to do a few low value deals then pick a company that charges by the value of your account. If you have a lot of money but few deals, you might pick one that charges by the deal, etc.

I personally used IRA Services and can't recommend them more highly. I wouldn't say their education was great, at the time, but their cost and service was outstanding for my needs. (Be careful taking recommendations from those who haven't personally used a particular custodian. Knowing or hearing about someone is not the same as using a specific company with your hard earned cash.)

All of these companies will kill you over checks written, disbursement fees, signatures, wire transfers, and so on. After a while, once you’re comfortable and understand the rules – which are relatively simple, you might consider setting up a self-directed 401k. This is what Tony Spandrio hinted at above (I think).

You don't need an LLC for a SD401k and you really can contribute roughly $50k to these instead of the max $6k or so to an IRA. There are a thousand posts about SD401k's here on BP so if you're interested, do a search. Many here rolled our IRA's into these and no longer need a custodian. I suggest you learn to crawl before you walk, however, Daniel, so using a IRA custodian makes sense at first.

One strong warning I'd give first-off is to rethink using an IRA for rentals. You'll get no benefit of depreciation and can only use the funds on-hand in your account toward the purchase and operations. Borrowing will require a non-recourse loan and can subject what you think is a tax-deferred or tax-free account to annual taxes (called UBIT).

In my opinion, retirement funds are great for notes, tax liens, and other forms of paper (non-depreciable items subject to interest income -- sorry to get technical). There are too many benefits to rental income that you can’t take advantage in a retirement account and way too many drawbacks. Again, do a search here.

Jeff