Question Regarding SD IRA Checking Acct

[Kevin L.]

I have used my ROTH, housed at Equity Trust, to invest in properties. These properties require extensive renovations. Getting to the funds and paying contractors timely is an issue with ET and assume this is an issue with other custodians as well? Its more than just paying large contractor bills... smaller transactions like trips to the hardware store for light bulbs for instance. I've tried to pay for them with my cash and have my IRA pay me back, but ET says that is a no-no.

At the advice of my accountant, I have set up a checking acct for my IRA at Wells Fargo. For an investment, I withdraw all of my ROTH funds above and beyond the purchase price of the property. I pay for the property and put the excess in the designated Wells Fargo acct to use for the rehab.

When the property sells, I put all of the sales proceeds and any remaining balance of the WF account back into my ET acct.

Am I putting my ROTH in jeopardy or is this OK? Everything is meticulously documented.

[Doreen Chaisson]

There are many Self-Directed IRA custodians out there. It is advisable to do your due diligence and ask about such things as how long have they been in business, are alternative assets their sole focus, are they BBB accredited and rated, are they a regulated financial institution, have they ever been sanctioned by any regulatory bodies, how many accounts and how much in assets do they administer?

What often gets overlooked is the type of company you are choosing. IRA providers can be put into three separate categories: Custodians, Administrators, and Facilitators.

Custodians are the first type of company, and are usually the most common. They’re either a bank, credit union, or non-bank custodian approved by the IRS (usually a broker dealer who obtains IRA approval). Custodians are permitted to custody assets held in an IRA under IRC Section 408. They’re also subject to strict regulatory oversight at a State or Federal level. Custodians tend to take a more conservative approach when reviewing alternative assets for investment, as they want to avoid the custody of any assets that may be involved in prohibited transactions. Alternative Asset custodians cannot give any tax, legal or investment advice, cannot assist with the structure of an investment, and cannot endorse, promote or align with specific investment sponsors.

Administrators are the next type of company. Essentially anyone can be an administrator, and their main function is to perform administrative functions only. Because of this, they also need to have an identified custodian for the self-directed IRA named in the account disclosure documents. Administrators are only subject to regulation if required due to profession (CPA or attorney), not for role as administrator. This allows administrators to be much more liberal in accepting assets and allows the ability to align with investment sponsors. Review fee schedules carefully – there may be separate charges for whatever 3rd party custodian they are using.

The third company type is a Facilitator. They educate investors on the process of self-directed investing or assist in setting up single-member LLCs for either “check-book control” or to purchase a franchise or ROBS (Roll-Over Business Startup). They may also provide administrative services for the LLC. Like Administrators, Facilitators must have an identified custodian for the self-directed IRA and are only subject to oversight on a professional level. They are also much more liberal in accepting assets and can align with investment sponsors. Again, review fee schedules carefully – there may be separate charges for whatever 3rd party custodian and/or administrator they are using.

Some companies, like Equity and the company I work for, are both administrator and custodian for self-directed IRAs.

So when you’re looking for someone who offers a self-directed IRA, make sure you know the type of company you’re dealing with. This will help when determining which company best fits your investment scenario.