What should I look for in a Self Directed IRA?

Question

Starting to look into self directed IRAs. The goal is to purchase one or two properties this year and would like to know what custodians do you recommend? When researching what are things that I should look out for?

Bryan O. · Answer

I recommend finding a SDIRA that allows an IRA LLC. If not, you may run into a number of issues because every thing you decide needs to be vetted by someone else, sit in someone else process, then get acted on by someone else. Not a position you want to be in. While some custodians are faster or smarter than others, it's not as fast as you doing what is needed when it's needed.

It also saves on having fees charged for every single check cashed and check written as well.

Justin Windham · Answer

@Karen Reynoso

I would look into the Solo 401k (a more powerful structure than an IRA, if eligible) or the IRA LLC. Both provide checkbook control, which is a great feature. Just be sure you are willing to obtain a good understanding of the rules that you must follow with your self directed retirement account. This is important regardless of what type of account you choose to go with.

Brian Eastman · Answer

@Karen Reynoso

There are two business models you can use with an IRA.

IRA Custodians (trust companies) hold the IRA account and process transactions.  It is just like having an account with a conventional brokerage, except self-directed IRA custodians have the staff training and paperwork to document IRA investments in alternative assets such as real estate.  They hold the funds, sign the contracts, issue funds for expenses and receive income from the investments - all for the benefit of your IRA.  Contrary to what @Bryan Otteson notes above, they do not vet the transaction.  They are simply administrators and processors, and do not provide any kind of diligence or IRS compliance guidance other than general education.  They just ensure you sent the necessary paperwork to document the transaction.

A Checkbook IRA LLC is an enhancement on this structure, and makes sense if you will have a decent amount of interaction with the investments, as is generally the case with rental property.  The same type of IRA is used, but rather than make direct investments into real estate, the IRA itself makes one investment into a specially created LLC entity.  The IRA owns the LLC and you can be the non-owner manager.  This gives you signing authority for the LLC.  You will open a bank and/or brokerage account to hold the LLC capital and use the LLC as your transaction layer, under the umbrella of the IRA.  Custodians do not directly create such programs, as they are prohibited from providing legal and advisory services, so a different type of company will setup such a structure and most such companies have one or more custodians they work with on that piece.

The IRA LLC structure is much more responsive and eliminates a lot of per-transaction fees, though of course creating the legal entity in the first place will cost more up front.  If you work with a quality firm and not just a marketing company/document provider, then you will also have access to quality support for the tool as you invest, and can consult with your provider to ensure your strategy is within IRS guidelines.

If you are self-employed, there is a similar program with checkbook control called a Solo 401(k) that can have advantages as a more powerful retirement plan than an IRA.

Loren Whitney · Answer

@Karen Reynoso

I agree with Rick. The answer completely depends on your investment strategies. Some custodians are far more automated from a technology angle than others and many still require you to complete paper forms for every action. Convenience, knowledge, speed, and accuracy should all be top priorities. Best of luck!

Rick Pozos · Answer

Hey Karen,

It really depends on what you want to do with it. You say you want to buy a couple houses. Does that mean flips, rentals?? You would have to check with the different companies to see what fees they charge and for what. If you want to do rentals and the company charges for each check that comes in, you MAY not want to use them. But if the charge is not that much, it may be ok.

If you have done flips and rentals already, you know what checks have to be written to contractors, taxes, insurance, etc. You just have to see how the custodians charge for your types of transactions.

Bob E. · Answer

I have had a very good experience using MidAtlanticIRA.com.  No affiliation other then a very satisfied customer.

Mark Nolan · Answer

@Karen Reynoso

I like IRA Services Trust Company for 3 reasons:

1. They have been in business since 1978.

2. They have low fees; and

3. They are easy to work with.

Kevin Moen · Answer

Keep in mind if you use leverage to buy a property with your SD IRA you can only get the percentage of capital your IRA contributed as a tex deferred. Did I say that correctly IRA pros? @Karen ReynosoHave you ever considered investing in notes for passive income?

Brian Gibbons · Answer

Hi Karen,

@Brian Eastman is your man here. :)  So many Brians! lol

Karen Reynoso · Answer

@Rick Pozos Thank you. And yes, couple of rental properties. I appreciate the heads up on the transaction fees if there are any.

Thank you @Loren Whitney!

Are there any custodians that you'd recommend or have had experiences working with?

And @Brian Gibbons this might be a silly questions, but in other words the SDRIRA is acting as an LLC? Or what do you mean allows an IRA LLC? If it is an IRA LLC, are you saying that you can control and make decisions without third party approval, paperwork, or fees?

What should I look for in a Self Directed IRA?

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