Self Directed IRA Questions - Please Help!!!

[Joshua White]

So my wife and I are giving serious thought to starting a Self Directed IRA with plans to eventually purchase rental property. I haven't really been able to find a concrete, clear, concise breakdown of how it all works. The extent of my knowledge is that the IRA allows a person to use pre-tax dollars to invest in nontraditional investments [mutual funds]. I do understand that the funds cannot be used for personal use or gain. (i.e. - personal residence). With that being said, I have several questions that I haven't found the answers for anywhere else. Im sure some of you will be able to set me straight.

1. Who are typically custodians of the Self Directed IRAs ? Do Credit Unions administer these types of IRAs ?

2. Can you take out a HELOC on a home bought with a Self Directed IRA in order to purchase another home ?

3. What is the annual limit on how much you can put into a SDIRA?

4. Is there a minimum amount that I need to start a SDIRA ?

I would really like to take advantage of this benefit, but before I do, I would definitely like to find out a lot more to ensure it fits into my family's plan to create wealth!

Thanks in advance you guys!

Josh 

[Brian Eastman]

@Joshua White

There are no specific answers to many of your questions. There are various types of self directed retirement plans (IRA,Roth IRA, SEP IRA and Solo 401k) that have different plan characteristics such as contribution limits, for example.

1. Who are typically custodians of the Self Directed IRAs ? Do Credit Unions administer these types of IRAs ?

>> Self Directed IRA's are provided by specialty institutions with the staff-training and business model to deal with non-traditional assets. Most common banks and brokerages do not offer SDIRA plans and certainly this is outside the scope of a credit untion.

2. Can you take out a HELOC on a home bought with a Self Directed IRA in order to purchase another home ?

>> Not exactly a HELOC, but you can get a mortgage against an IRA owned property - whether for a new purchase or already owned by the IRA. The mortgage needs to be non-recourse - meaning no personal guarantee from you. The down payment requirements will be higher, and in an IRA based plan (but not a 401k) there is a tax that applies to the Unrelated Debt Financed Income (UDFI).

3. What is the annual limit on how much you can put into a SDIRA?

>> Varies from $5,500 - $53,000 depending on the plan type, with provisions for additional contributions if you are over age 50.

4. Is there a minimum amount that I need to start a SDIRA ?

>> Technically no, but practically yes. You are not going to be able to participate in arms' length investing on behalf of the IRA into assets such as real estate with a small account. You need to have enough capital to actually do deals with the IRA money for a SDIRA plan to make sense.

There is a lot of good information here on BP on the topic.  Do some reading, speak with a few of the plan providers, and confer with your tax advisor before moving forward.