Encinitas, CA · Member since 2011 · 191 posts · 252 votes
My current self-directed IRA custodian does not have a brokerage account option. I have a self-directed Roth IRA that owns real estate and invests in notes but am considering diversifying into a brokerage account. As I understand it, I can do a partial transfer out of my Roth to a standard brokerage and basically set up an IRA with the new brokerage firm. Has anyone done this and are there positives or negatives to this approach? Once the brokerage account is established is it basically a separate IRA outside the self-directed custodian's control?
I know that this may be easier with checkbook control, but that is not really my question. Thanks to those that respond.
A Checkbook IRA would provide the advantage of having those brokerage assets inside the one vehicle, and the ability to either quickly move back and forth between real estate and stocks as opportunity dictates, or keep the income produced by the real estate meaningfully deployed. It would also simplify the operation of your real estate investment, reduce your operating costs, and provide a better layer of asset protection.
You can, as you suggest, open another IRA for investing in conventional brokerage assets. This requires a trustee-to-trustee transfer between the accounts when you want to move funds in either direction. That can take a few weeks.
Holding the brokerage assets in a separate IRA is actually a good idea of this is a larger sum intended to be left in stocks for a reasonable period of time. By having them in a separate IRA, they are less open to liability exposure stemming from the IRA's real estate investment.
Bottom line is that you may have multiple IRA accounts and move funds between them relatively freely.
A Checkbook IRA would provide the advantage of having those brokerage assets inside the one vehicle, and the ability to either quickly move back and forth between real estate and stocks as opportunity dictates, or keep the income produced by the real estate meaningfully deployed. It would also simplify the operation of your real estate investment, reduce your operating costs, and provide a better layer of asset protection.
You can, as you suggest, open another IRA for investing in conventional brokerage assets. This requires a trustee-to-trustee transfer between the accounts when you want to move funds in either direction. That can take a few weeks.
Holding the brokerage assets in a separate IRA is actually a good idea of this is a larger sum intended to be left in stocks for a reasonable period of time. By having them in a separate IRA, they are less open to liability exposure stemming from the IRA's real estate investment.
Bottom line is that you may have multiple IRA accounts and move funds between them relatively freely.
Lender · Pensacola, FL · Member since 2017 · 658 posts · 626 votes
7y
I've never had a Checkbook IRA, but I have used the Automated Customer Account Transfer Service (ACATS) to transfer cash from an IRA at one custodian to an IRA at a different custodian. I understand the IRS considers a custodian-to-custodian transfer to be a safe-harbor way of transferring IRA money among different custodians (versus taking possession of the money yourself, which if you mess up in any way, the IRS treats as a distribution and you lose the tax advantage).
Specialist · PA · Member since 2018 · 85 posts · 122 votes
7y
@Rob K. Yes, you can establish an IRA account with a brokerage firm and transfer from your self-directed Roth to the Roth at the brokerage firm. It is a separate IRA account that you would direct independently from the self-directed IRA account. I'm not sure what you mean by "outside the self-directed custodian's control"; the brokerage account custodian would have no more or less "control" than the self-directed IRA custodian.
Your self-directed IRA custodian may charge fees for a partial transfer, so you would want to check their fee disclosure document.
Also, I know that you are not really asking about checkbook IRAs, but you might want to consider separate IRA accounts for your brokerage activities and your self-directed activities.
Note this from the IRS website: "Generally, if an IRA owner or his or her beneficiaries engage in a prohibited transaction in connection with an IRA account at any time during the year, the account stops being an IRA as of the first day of that year. The effect of this is the account is treated as distributing all its assets to the IRA owner at their fair market values on the first day of the year. If the total of those values is more than the basis in the IRA, the IRA owner will have a taxable gain that is includible in his or her income."
So if you had other assets (including exchange-listed investments) in the same IRA account as your self-directed investment and the IRS determined you had conducted a prohibited transaction, the exchange-listed assets would be deemed as distributed along with the self-directed investment.
Having separate IRA accounts for brokerage and self-directed investments can provide you with a "firewall" of sorts in the event that one account engages in a prohibited transaction.
Rental Property Investor · Ambler, PA · Member since 2015 · 2k+ posts · 1k+ votes
7y
@bob k.
Keeping IRAs separate based on risk is important and as others mentioned real estate has more risk of problems than a brokerage account.
Diversification is always good if you invest in things you know and understand. That is probably the biggest pro. The only other negative is it is another statement, password, etc that you have to maintain and track.