Cheapest Way to Set Up Self Directed IRA

[Tim Porsche]

Hi All,

I currently have a little over $6,000 in a 401k from one company, and a Roth IRA from a second company. I no longer work for either company, and would like to move that money into a self-directed IRA and invest it in P2P loans. I'm pretty much clueless on how to accomplish this though, and have a few questions I'd appreciate your input on.

1. What kind of setup fees would I be looking at for creating a self-directed IRA? Would it be worth it for only $6,000?

2. Are there any annual management fees associated with most self-directed IRAs? If so how much would I be looking at paying for that?

3. Is there a better alternative besides a self-directed IRA to do what I want to do with the money? Early withdrawal would cost me about 20% I believe so I don't really want to do that.

4. If I set up a self-directed IRA account, who would you recommend I contact to set it up?

Thanks in advance for any advice you can give.

[Marc M.]

@Tim Porsche, if you don't qualify for a Solo 401K (or don't have a ton of cash to put into it) I think you're best bet is to do a Self-directed Roth IRA LLC with checkbook control. There are plenty of SDIRA advisors that can set this up for you, @Dmitriy Fomichenko being one of them. The upfront cost is worth it ($1500 - $2500 setup fee) because you'll burn through fees transacting with the major SDIRA custodians. Just read a few forum posts on the SDIRA's from BP members....and most are complaining about either the fees or the headache of dealing with an unresponsive third-party to handle your transactions. The counter argument is that if the custodian is handling all of your transactions you're less likely to get into hot water with self-dealing, which is actually easy to avoid if you understand the basic rules. 

I use Kingdom Trust as my custodian and pay $100 flat fee annually. Because my SDIRA has its own single-member LLC, which I manage....I essentially operate out of a business checking account (where the bulk of my funds reside). This saves me lots of money. For instance if I want to participate in a tax auction, I transfer the money to the county Treasurer through my business checking account. I actually just did this recently and bought some cheap ($1000) houses, then had a locksmith open the doors and re-key the locks....I paid him using a debit card from my business checking account (credit cards are not allowed).

Because you're starting out small (as I did too), I think it's even more necessary to go the SDIRA LLC route....using my previous example, if I want to liquidate this $1000 house for a profit down the road, I can transact it myself with a quitclaim deed and deposit the check into my IRA's LLC business checking account. Or if I rent it out, I'll collect the tenant's payments into this account and pay out all the expenses as well. Have a look at the fees from other custodians and start imagining all the transactions that will pile up: snow and lawn care, regular maintenance calls, accepting and returning security deposits, etc....

Also, don't be deterred with $6K...you can always start it and add $5500 to it later this year. Maybe @Kris Haskins can share some of his success stories of how he started with $2K !!

Good luck!