Searching for an IRA

[Kimberly Dunbar]

Hello, I am currently looking to switch over my 401k to a self directed IRA. My question is about company recommendations to open the IRA in? Do you have particular insights that help you to choose the company for the IRA?

[Brian Eastman]

@Kimberly Dunbar

There are several dozen companies that specialize in some form of self-directed retirement plan programs. In order to focus your search, you should determine what your investment goals are and which type of program will best suit your needs.

IRA Custodians (generally with the word trust in their name) are essentially doing the same thing as a brokerage, but have the staff training and paperwork to document non-traditional assets such as real estate, mortgage notes and stock of privately held companies. In this model, they will hold the account and process all transactions related to investments. Every interaction with the account will require forms to be submitted, time for processing, and processing fees (or asset based fees). They do not provide tax, legal, or investment advice. For more static assets, this can be a good model.

Retirement plan facilitators and consultants offer more sophisticated programs that provide you with checkbook control. In an IRA based structure, the IRA is held by a custodian like above, but the IRA is pushed to the back end and simply makes a single investment into a specially created LLC. The IRA is the owner of the LLC and you can be the manager. You can then act as "fund manager" of this entity and handle all transactions personally out of a bank account of your choosing. This eliminates the paperwork, delays, and per-transaction fees of the custodian, but costs more to setup initially. Quality firms in this field will do more than just setup the documents, and will provide you with ongoing access to consultations about the use of your plan and compliance with IRS guidelines.

If you are self employed and have no full time employees, you would qualify for a Solo 401(k). This type of plan is similar to the IRA LLC in that you have direct control over the funds in an account of your choosing, and can administer transactions yourself. The 401(k) format is a more powerful retirement plan and has higher contribution limits than an IRA in addition to some other potential advantages.

Both the IRA and 401k plans with checkbook control provide a real advantage if you will be investing in multiple projects, projects with a need for quick reaction time for funding, or assets that require frequent ongoing expenditures such as rental property (taxes, insurance, repairs, deposit of rents, etc).

There is a lot of good information here on BP that will help you to identify some providers of the above services, and I'm sure some members will chime in with their experiences.