Self Directed IRA

[James Pignataro]

Hello Bigger Pockets,

I have a significant amount of capital in a retirement account and not enough capital in the bank to purchase my next investment property. Does anyone have experience with a self-directed IRA in Massachusetts? I have been researching and it seems odd that the firms that offer these products are not "big players" or "well known" firms (none that I have heard of at least). Any advice, pro's and cons, or personal experience is welcome. I enjoy investing in real estate rather than the stock market because I know that I hold a tangible asset with less risk, I don't want to increase my investment risk by moving money into a self-directed IRA with a firm that I have never heard of.

[Brian Eastman]

@David Krulac 

One can in many cases roll IRA funds into a 401k. Not all 401k providers will allow for this, but a Solo 401k certainly would.

@Michael Saberniak 

A SDIRA or Solo 401k is absolutely not pointless. The tax situation is different relative to real estate investing with non-qualified funds, indeed.  But, as @James Pignataro indicated he already has significant IRA capital. Comparing investing that IRA in the stock market vs real estate is the question being asked. I think you would agree that someone who understands real estate investing can do a lot better growing that tax sheltered retirement savings investing in what they know.

@James Pignataro 

There are great opportunities with a self directed IRA and many providers you can work with. There is a lot of good information on BP in the blogs and forums that would get you started on your research. There are two different business models: having a custodian (they have the word "Trust" in their name) hold the account and process all transactions, or working with a legal or advisory company that will have a custodial IRA at the back end invest into a LLC that you can manage and control under the umbrella of the IRA. Depending on your strategy and goals, either can work but it will become clear pretty quickly as you do your research which model will work better for your needs. Generally speaking the IRA LLC (or a similar Solo 401k program) will work better for higher transaction activity and tight timelines.

Be sure to speak with several providers.  You'll figure out who knows what they are doing and who is just marketing plans.

And yes, as has been pointed out, this is a niche service. The big firms control 97% of IRA money and focus on wall street only. Non-traditional asset investing requires special staff training and knowledge, and the big firms choose not to run a special division to handle this. Self directed investing has been available since the 1970's when IRA's were created, but have generally been the domain of smaller, specialty service providers. The nice thing is that since you are not dealing with the huge firms, you can actually get some really friendly, personalized service. Refreshing, no?

Best of luck as you continue your research.