Self-directed IRAs. Who's used it & was it what you expected?

Question

I'm looking to move my husband's IRA to a self-directed IRA and use the money to purchase and rehab houses. I've researched a couple. (Don't know if I can name names here) I'm leary of the fees and level of support you get or don't get after the sales pitch is over and the money moved over.

I just wanted to know if anyone here's used one and how the experience went. Would you do it again and why or why not?

Edward B. · Answer

@Julia Vang Hart,

Just to add to the overwhelmingness. IRA LLCs are a good option if you are doing a lot of transactions. Many custodians do not like them because you are taking transaction fees out of their pockets. They are also a good way to get yourself in trouble because you do not have the backstop of the custodian having to approve your transactions. If you are going to use one you really need to understand the rules governing IRA funds. They are not cheap either. You absolutely cannot set one up on legalzoom. You must have a qualified person do it because there is very specific language that needs to be in your operating agreement.

Lastly, I was not recommending Equity Trust, just using them as an example. I have actually heard a lot of people complain about Equity Trust lately. I use NuView IRA out of FL. I have been very pleased with their service but their website leaves a lot to be desired in my opinion. I have heard very good things about Quest IRA out of TX, but cannot personally vouche for them.

The fees are definitely steep in comparison to your standard ETrade IRA or whatever, but they allow you to make outsized returns so that must be factored in. If you are not going to actively employ the funds then this is not the route to go.

I'll give a shout out to @Dmitriy Fomichenko who is very wise in the ways of retirement account strategies.

Agi Anderson · Answer

@Julia Vang Hart I assisted an investor who purchased six properties with his self-directed IRA. I have aligned myself with NuView IRA, an excellent company who services across the USA. You and anyone else can contact Tyler Carter to ask questions.  He really is a excellent resource! Message me for contact info.

Rajeev Kotyan · Answer

@Julia Vang Hart: There is no harm in having a checkbook control IRA LLC like that has been discussed here, and you have hit the nail in the head that you have to be careful with the prohibited transaction, but there are other caveats that have to be considered too, when working with the Checkbook Control IRA, LLC... one of them is to enable your IRA to get the beneficial tax treatment, the LLC at any given time has to be deemed as a "real estate operating company", wherein the definition states that: "atleast 50% of the assets, valued at cost, are invested in real estate which is managed or developed and with respect to which such entity has the right to substantially participate directly in the management or development activities and such entity in the ordinary course of its business is engaged in directly in real estate management or development activities"

Based on what you have outlined in your initial posting of what you intend to do, it appears you would fall into this definition, but it has to be consistent throughout the life of the entity. This is critical as the IRA would end up having to pay taxes.

As I always mention: Work with a qualified and knowledgeable professional who can guide you through all the caveats and nuances.

Larry Olson · Answer

EDWARD,

Agree with your post. As for the LLC (checkbook control) it can also be done with a trust which I prefer because it's just easier. As mentioned, some custodians don't like them nor do they understand them and/or they have horrendous fees for setting up a checkbook control (which I find is  MUST). Should be able to to that virtually free, so a hundred dollar fee would not be unreasonable, but thousands.... no way.

Quest in Texas is great, Advanta in Florida is great. However, don't expect legal advise, but they will tell you what the law it.

Julia,

And you'll want to do your homework. There's TONs of good info on the custodians web sites. YOU can't get involved because you're a disqualified party. You can help with decisions, etc., but can't write the check or contribute funds or do the rehabbing.... but you can control it. Read up on disqualified parties.

And, I could argue for the IRA to not hold title to property... only control it and reap the profits, using loads, options, etc. Get a good qualified friend that can help you (and you can help them).

And also with self directed IRAs, consider moving the dollars into a Roth, so the income it not taxed. But you'll pay tax on the dollars going in, so do that in a year with low income or losses.

Overall, self directing is a powerful tool. Works.

Edward B. · Answer

@Julia Vang Hart,

Definitely shop around. Decide what you want to do and make sure your custodian is willing and able to do it. For example, if you are thinking about an IRA LLC now or in the future then Equity Trust is not the way to go.

Since you mentioned that you are wanting to do flips I would generate questions specific to that. You don't want them to kill a deal because you need to move fast and they need time to understand what you are trying to do. You want someone who works on the types of deals that you want to do all the time.

And make sure you are working with someone who can walk you through the complications and answer your questions. They will not give you investment advice but they should be available to keep you out of trouble and be readily available to answer your questions before you get into trouble.

With flips you will not be able to put ANY of your own money, or the money of a disqualified person into it. So you need to have enough of a buffer for the IRA to bail you out of a bad deal. You won't be able to do it. And your level of involvement in managing the flip also must be carefully considered. So find a custodian that can explain all of that you.

Rajeev Kotyan · Answer

@Julia Vang Hart: Just like anything else, it all boils down to money... all the custodians I have dealt with have their good and back (both self directed IRA and brokerage firms). I would recommend that you call and request to interview their customer service staff and supervisors and have each one of them show you the ropes as what they do in each of the different scenarios that you can foresee. There is truly no one size fits all.

Note: I have dealt with 10 custodians in the SDIRA world in the last 15+ years, and even with that I would not want to put one specific name out there, and I do not work for/represent any of the custodians.

Julia Vang Hart · Answer

@Agi Anderson: I will message you for his contact information. Thanks!

Julia Vang Hart · Answer

@Rajeev Kotyan:  Thank you so much for the tip! That sounds exactly like how I need to have the LLC sturctured. Besides doing my homework I need to find a qualify professional to help and guide me.

I can't thank everyone enough for taking time out of your busy day to answer my questions and give such valuable input.

Julia Vang Hart · Answer

@Larry Olson: Thank you. You've given me more food for thought. I guess the key here is to find a custodian that will be easy to work with and show me the ropes. Perhaps after one or two transactions this all will make better sense.  Disqualified parties. Right. Sounds like I need to know that list like the back of my hand. Will do.

Julia Vang Hart · Answer

@Edward B.: Wow, I am finding that there's so much to learn and understand about SDIRAs. I will proceed cautiously. Would rather spend the sleepless nights now then later when there's money to lose. I'm doing a ton of research now and vetting custodians as much as possible. So glad I didn't decide to go with the first custodian I found. I have no idea there are so many! Will scratch legalzoom of my list. I'm not ruling anything out whether it's flipping or buy and hold. I see so much opportunity in this market and I want to get started like yesterday. I'm leaning toward an IRA LLC and run the business, (Hart Enterprises LLC, for example) as autonomously as possible, while following rules governing IRAs, but without running every business decision by a custodian. Don't know if that's possible but that is the goal.

Self-directed IRAs. Who's used it & was it what you expected?

Most Popular Reply