Tuesday, May 15, 2007

The Best Self Directed IRA

I've been doing a lot of research recently about the best company to use for a Self Directed IRA, so I thought I'd better share my knowledge.
What is a Self Directed IRA?
A Self Directed IRA is an IRA that allows you to choose your own investments. Your current IRA provider will probably tell you that you can choose your own investments -- "Oh sure, you can choose between the Janus Fund and the Fidelity Fund." No, that's not what I'm talking about. With a real Self Directed IRA, you can invest in not only stocks and mutual funds but also real estate, businesses, notes, and just about anything you want, as long as you avoid certain prohibited transactions. Prohibited transactions are simply transactions where you use the money to benefit yourself instead of your IRA, but it's important to read and understand the details.

So if you're tired of losing money in the stock market and getting jerked around by self serving mutual fund managers, a Self Directed IRA is the way to go.

You can easily convert a non Self Directed IRA into a Self Directed IRA. You can also convert a 401K, if you have one sitting around from a former employer. If you have a 401K with a current employer, you probably don't want to convert it to an IRA, since you would no longer get matching funds.
Downsides of a Self Directed IRA
While Self Directed IRAs offer a lot of advantages, there are also some downsides to be aware of. For one thing, you can't just go out and invest the money. You have to have a custodian company (i.e. babysitter) that actually does all the investing. So, for example, let's say you want your IRA to invest in a house. Rather than writing a check to buy a house, you have to request that your custodian send a check. And instead of managing the property yourself (not that you'd want to), you have to hire a property management company and the custodian has to pay them out of the IRA. There are a few little tasks like this that the custodian has to carry out, and they all seem to cost money.

Self Directed IRAs also have issues when buying property using leverage.

But the upsides definitely outweigh the downsides.
Selecting a Custodian
I looked at all sorts of custodians. Some really nickel and dime you for every little thing, (Pensco and Sterling Trust for example). No thanks.

A lot of real estate gurus promote Equity Trust for some reason. Equity Trust doesn't nickel and dime you as much, but their annual fees get really high (up to $1850 per year) if you have a lot of money in your account. And I for one plan to have a lot of money in my account! So no thanks.

Entrust offers a pretty good deal. But the best one I found was Sunwest Trust. They charge a $50 setup and then a flat $190 per year if you go with the IRA LLC option.
IRA LLC
The best way to go when setting up your Self Directed IRAs is to set up an IRA LLC. "IRA LLC" is not a legal entity type. It just refers to an LLC that your IRA invests in. The operating agreement will have some verbage relating to the fact that the LLC is set up for your IRA. If you're only going to have your own IRA investing in the LLC, then you would set it up with the IRA as the sole member of the LLC, and you as the manager of the LLC.

Setting up an IRA LLC provides the following benefits:
  1. Checkbook control. Once the LLC is funded, you no longer need the custodian to write the checks. The LLC can write its own checks, and since you're the manager, you have control.
  2. No nickels and dimes. Since the custodian is only managing one asset, you pay a flat $190 per year, if you go with Sunwest Trust's Single Asset Account plan. Entrust has a similar plan for $250 per year.
Options for Setting up the LLC
Now you need to set up your IRA LLC. How should you go about it?
  1. You can have your lawyer set it up. He will probably charge you $3,000 to $5,000. And he may not know much about Self Directed IRAs. Not the best way to go.
  2. There are companies such as Guidant Financial, which provide the LLC and also administrate the IRA. Guidant is not a custodian, but they have an agreement with an unnamed custodian to only charge $130 per year for the annual fee. But setting up the LLC costs a whopping $4,000.
  3. You can have a less expensive lawyer do it. You should be able to find someone in the $500 to $1000 range. In Arizona, Richard Keyt is a good option. He's very experienced at creating LLCs, and he gives a $50 discount for AZREIA members. His cost for an IRA LLC is $949, which includes filing the articles and publishing.
  4. If you google "IRA LLC kits" you'll find a few inexpensive options such as this one, which costs $195. I'm not sure how worthwhile these kits are.
  5. I bought a CD on ebay which had some good stuff, including an operating agreement for an IRA LLC. Cost: $32. Search for "IRA LLC" on ebay and you'll probably find it.
I am not a lawyer, but my guess is that the operating agreement content is probably not as important as the lawyers say it is. You'll probably be fine setting up your own. But the important thing is that you avoid prohibited transactions, and file the proper paperwork with the IRS. For the LLC you need to file an informational return each year, which basically just tells how much the LLC is worth. For the IRA your custodian should handle the needed forms.
A Better Solution
I decided that Sunwest Trust had the best deal, but I may not end up using them. "Why not?", you ask, (no doubt recoiling in dismay). The answer is that I found a better solution: It's called an Individual K, or Solo 401K.

I'll tell you all about it in my next post...

108 comments:

Kenneth said...

Hello Nacho,

I am just starting to look into this type of investing myself. I have been to a few of these sites that you have mentioned and have been comparing them. It does look like to set up a LLC that most companies would change some absurd amount of money. I have also heard that some companies will set up the LLC for something relatively cheap but will charge you counseling fees every time you call in and ask for advice or questions.

I can tell you that checkbook control LLC’s are on the IRS’s Dirty Dozen list because of the self dealing that they in essence promote.

Fees seem to be to the main decision making factor when choosing what company to go with. I was looking at the fees for 2 of the companies you mentioned Sunwest Trust and Equity Trust (thinking maybe there was a reason that all the “Real Estate Guru’s” use them).

Sunwest Trust gives you 1 free transaction a year, and if you invest in rental property, then you can kiss that transaction goodbye (each monthly rent check would count as a transaction). That leaves you open to all the maintenance you would do on the property (plumbing, roof work etc…), the taxes, insurance, and whatever else might come up.

Equity Trust has “No transaction or distribution fees”!

After I looked at the fees I went to check out company history. Equity Trust has a decent page and they have been in business for 33 years, and Sunwest Trust takes you to a broken page. Nice!

I am interested to see your next post about Individual K’s, but from what I have seen, I don’t think that Sunwest was the way to go.

- Kenneth

Nate Tanner said...

I think you missed the point of the LLC. The IRA invests in the LLC and that's it. That's your one investment. Then the LLC pays the rent and everything else, so the IRA never has to deal with any other transactions. So the only fee you pay is the annual $190.

With Equity Trust, even if you set up an LLC it wouldn't reduce your annual fee, so if your LLC was valued at $1 million, your annual fee would be $1850. With Sunwest's or Entrust's single asset option, the value of the account doesn't matter, you just pay the one single asset fee.

Going with Equity Trust would cost me tens of thousands of dollars more than Sunwest or Entrust, over the next 30 years.

I know Sunwest has some issues with their website, but they've been fairly good at answering my questions on the phone. The number is 1-800-642-7167 (and no I don't work for them.) I can't really vouch for them other than that since I haven't set up an account yet.

Nate Tanner said...

By the way, I initially thought that by setting up an LLC you could get around the UBIT issues (when investing with leverage), but that is apparently not the case. From what I've heard more recently, the same rules apply to the LLC investing with leverage as they would to the IRA investing with leverage.

Nate Tanner said...

To clarify my comment about Sunwest and Entrust being a better deal: If you are not going to form an LLC for the IRA to invest in, then Sunwest and Entrust are probably no better than anyone else. Equity Trust may be the way to go, since they don't nickel and dime you as much. But I highly recommend the LLC route.

Anonymous said...

Well researched I think. I too think SW is good after talking to Arthur D and Anna W. Have you checked out IRA Services and IRA Resources. My corporation.com says they can do an IRA LLC for about $400 +/-. I was wondering why you didn't use the CD and do it your self. Except for their spelling errors they seem to have what it takes, do you agree. Guidant says their recommended Custodians(who are they?)will all do the job for $130 /yr for the IRA LLC. I'd like to find out who they are.

Hurry up and tell me the sequel of on Solo or Individual K/401K. Steve

Anonymous said...

Hey Nacho, This is Steve the previous Anonymous. I just talked to IRA Services and they will let me invest my Roth IRA in a piece of $400 K land and charge me only about $116 annually for holding the deed, reporting the evaluation and paying my real estate taxes. Look at their fees here. http://www.iraservices.com/forms_center.html
With these fees & services why would would I need an LLC? I may be moving my wifes Roth from Pensco to IRA Services near San Fran. Steve Chase chasers03@bellsouth.net

Anonymous said...

Hi Nacho

This is Erik. Your blog is one of a kind and it is just awesome.

I have been searching for a sample operating agreements for an IRA LLC without success. I did not come across one on e-bay either. Can you post or e-mail me a sample agreement?

Anonymous said...

love seinfeld and love your blog about self directed ira and LLC - have u completed your research yet on the solo k 401k??? would love to hear your info

matt

Unknown said...

Nice blog, I ended up with Equity Trust after a few years of researching. No need to go through the hassles of setting up the LLC.

Their direction of investment process is very simple.

They have tremendous customer service.

The down side of all custodians is they can not provide investment opportunities as it is a conflict of interest.

I started a website: www.self-directed-ira-401k.com to bring investments to self directed investors.

The only ones posted so far are my own real estate development resort cabin projects in the Arizona White Mountains.

I am hoping over time that many will take advantage of posting their investments.

Kent

Anonymous said...

I agree with Steve, IRA Services is a good company and they have been around for over 30 years. They also have a list of companies that can help you create the LLC, investment companies, ect... I forgot who asked, but Guidant's Custodian is First Trust Company of America.

Anonymous said...

Not sure why everyone thinks they need to create an LLC.

Equity Trust as your custodian follows your investment direction "For and behalf of "Your names" IRA. (No LLC creation or requirement since Equity Trust is a bonifide Custodian)

Don't get trapped into thinking you have to form an LLC to do self directed investing.

I have several folks now who have used their IRAs to invest in my real estate development LLCs (Not owned by my IRA but their IRAs are taking percentage ownerships in them)

I have used my Roth IRA to lend money for construction loans to several builders at a fixed double digit percentage interest rate plus profit participation. This strategy alone nearly doubled my Roth this year.

Hope this helps, don't get trapped by those companies that want it to sound so complex that you need to pay them to help you through that nonexistent mine field.

Anonymous said...

I have heard good things about Equity Trust, but there are a few drawbacks with any custodian. I have about $100 K in my Roth, their fees regardless if I am making any transactions will be $500 per year. In 10 years I will have paid them $5,000 dollars (assuming my IRA hasn't raised in value).

They say you can buy tax liens and tax deeds, but they don't offer check book control. Although they are infamous for not charging transaction or check fees, if you are bidding on tax liens/deeds or most types of foreclosures you will need to have them send out cashiers checks (which they do charge for). The fees would rack up fast in a bidding environment. I am also weary about companies that charge based on the value of your account because there is usually a bunch of paperwork and outside companies involved in determining the value of my IRA as it is in their interest for it to be valued higher.

When I spoke to Equity Trust about check book control they first told me it was prohibited by the IRS, when I asked why they said that it wasn't exactly a prohibited transaction but it will be in the future, when I pushed the issue because there is no reason for anyone to believe that he told me that people aren't smart enough to have check book control (good selling point).

No thanks, I'm sticking with the LLC where I am in control and the low annual fee from IRA Services.

On another note, after researching the invisible mind field of LLC documents, I found that if the LLC is filed where I am the owner it is a prohibited transaction, if the EIN is filed incorrectly it could trigger an IRS audit and the custodian does require special verbage in the LLC operating agreement. I gladly paid a couple thousand dollars to a professional so I can sleep at night.

Anonymous said...

I guess you confirmed that everyone's circumstances are different. Congratulations on how well you are doing.

For the type of investing you are doing "Anonymous", I can see where the check book control is necessary.

With the amount of $ I have in play, I chose not to touch the checkbook to stay away from the appearance of self dealing as I just don't trust the IRS won't someday bust the veil on it when they figure out how much money we are all making tax free.

Thanks for your post, I went to the IRA Services website to poke around. Tough to evaluate their direction of investment process to compare to Equity Trust.

Diane said...

You might also want to consider Millennium Trust Company (http://www.mtrustcompany.com/services/ira/real.asp). They are located in Oak Brook, IL and custody real estate in self directed IRAs. They can educate you on the process. Try contacting Sandra Reese at sreese@mtrustcompany.com for more info.

Anonymous said...

I am planning to start an IRA LLC. Invest my roth IRA money in LLC. The LLC will be a technology company (Probably call center). As you know that LLC is a pass through entity. I want to know that the income to IRA will be taxable. I read something about UBIT and UDFI. Any recommendation to set up a business in a way that business income passed to IRA is not taxable and business is not taxable.

Anonymous said...

To the person with the Roth and UBIT questions. If you are running a business that is unrelated to the purpose of the IRA (passive investments) then you will need to pay Unrelated Business Income Tax (UBIT) on the gains from the business. Because your call center is an unrelated business your roth will pay taxes. This doesn't make much sense right?

LLC's can be taxed as partnerships therefore pass through. Corporations pay taxes and then the investors of the corporation are taxed at capital gains. If your Roth invests into this business as an LLC the Roth will pay UBIT. If the company is a C-corp the Roth won't pay taxes but the company will (seems like the same thing).

It sounds like it doesn't make much sense to put your roth into this type of investment. Unless of course you are just trying to put as much money as you can in your roth and don't mind putting it in a taxable situation.

Anonymous said...

thanks for the unbiased information on IRA LLCs. I'm also evaluating custodians and you've saved me quite a bit of time. Look forward to reading your solo401K post. I set one up before year end, but haven't funded it yet. Need to do some investigation before I attempt self directing. When I looked into self directed custodians last year, Sterling Trust seemed to have better fee structure than the others I checked, but only for the Roth IRA. The self-directed solo401K from Sterling had huge fees attached to it. Regards, Mark

Anonymous said...

I've been investigating "checkbook control" IRA LLC's pretty thoroughly the last couple of days. Looked over lots of websites and read quite a bit of legal material that's used to support them. I've decided that the support for the "checkbook" IRA is pretty slim. There is nothing definitive from the IRS and only a loosely related tax case on which to base the whole concept (Swanson case). There is no CLEAR support for this type of IRA and it sounds like the IRS may challenge them because of all the abuse. The IRS could say I'm a disqualified person managing my LLC IRA and the consequences would be DIRE. I won't risk my tax exempt IRA status on such an arrangement until there is a clear IRS Rev Proc on the matter. Until then, I'm stuck paying higher fees for each transaction through a self directing IRA custodian. By the way, I've looked over them all, and my three best picks regarding cost for "checkbook" IRA LLC custodian service (if you want to take your chances on the concept) are: IRAservices.com ($91/year), Sunwest Trust ($290/year), and Sterling Trust ($125/year). Hope this helps somebody...it's about 7 hours worth of research boiled down. -Simplemark

Anonymous said...

I'm impressed!!! I am also grateful for all the info you all have provided. We have a SD-IRA real estate investment and we are getting killed on the fees. I'm dying to change companies and will gratefully check into the recommendations you all have made.

Anonymous said...

Hi there, I've been working in the Self Directed IRA/401(k) field for about 4 years full time. I just want to clarify something that is a common misconception: the perceived "shaky ground" of the IRA LLC structure.

Anonymous, the reason that there is no IRS Rev Proc about IRA LLCs is because it is a prohibited transaction issue. Under the Presidential Reorganization Act of 1978, the authority and responsibility to rule on prohibited transactions and their exemptions was passed on to the Department of Labor.

You can verify with the DOL that they interpret the Swanson case at simple face value. Managing the LLC owned by your IRA is not a prohibited transaction. Case closed.

The IRS actually has nothing to do with prohibited transaction issues. Congress makes laws; not the IRS. And DOL rules on prohibited transaction issues; not the IRS.

It's not up in the air whether the IRA LLC structure is legitimate. And it's not at risk of becoming non-compliant. You may hear rumors about such a thing, but if you go directly to the source (DOL) you will find that there is no such planned action at making such a powerful investment vehicle illegal. Neither the IRS or FDIC has any authority to change the situation... only Congress & DOL.

...and currently every single legislative change relating to retirement accounts tends to make self directed investing easier and encouraged.

Anonymous, you claim "the IRS may challenge [IRA LLCs] because of the abuse"... the IRS challenged it in 1996 (Swanson) and lost and had to pay the defendant's attorney fees. It's been challenged and they lost.

I hope this helps. :-)

- Jeff


As far as the abuse... the government's relying on us to honestly handle our IRA LLC is no different than their reliance on us to pay income taxes for our business. There is just as much potential to violate the tax code every time you file a business tax return as their is when you operate an IRA LLC. You don't see people avoiding operating a business for fear of "the IRS cracking down on others' abuse" because it is ridiculous.

Anonymous said...

I have been told that the self directed LLC needs to file a partnership federal tax return and send out K-1 to the custodian. Does anyone have infomation on this. The local accounts don't have a clue.

danroonie said...

I want to buy a rental property and pool resources from my spouse's IRA. From a liability standpoint, I'm more comfortable with an LLC; also, from a logistical standpoint I believe they'll be a lot of transactions so I believe an LLC is the way to go. I've put together the steps, and would love to hear from others that have established LLCs to purchase a rental:

a. Liquidate assets in existing traditional IRA brokerage accounts in preparation for rolling over funds.
1. Transfer (roll over) from IRA brokerage -> New Self-Directed IRA (http://www.sunwesttrust.com/ira_fees.aspx as recommended by Nacho) Cost ~$190/yr (are their accounts FDIC insured? How do they compare to theentrustgroup.com ($250/asset)
1b. Spouse roll over into a different SD IRA cost ~$190/yr
2. Order online "kit" for education purposes online for $125 (Terex as suggested by Nacho)
3. Use funds from Self-Directed IRA funds online to form "[Acme] Ventures" LLC using amerilawyer.com in my home state $155
4. Once the LLC is formed institute new articles of incorporation using #2 above
4b. Ensure the articles accommodate both spouses.
5. Fill in Custodian's form named something like: "Investment Authorization for Non-Publicly Traded Investments" instructing custodian towrite check to fund "[Acme]"
5b. Spouse fills in similar form to fund "Acme Ventures"
6. Open bank account for "Acme Ventures" LLC with check(s)
7. Go under contract for a property XYZ Trust Company FBO “ACME Ventures LLC. ” IRA
8. Reopen brokerage accounts controlled by Acme Ventures LLC with leftover funds
9. All property receipts/ payments from "Acme Ventures LLC"

Anonymous said...

I have a question. What happens if Sunwest Trust goes out of business? With banks you have FDIC insurance and with Investment Firms you have SPIC Insurance but how do you get your assets if they are being managed by a company out of business?

Eric said...

Excellent post and comments. Thank you everyone! I have been trying to research SD IRA's on and off for about 3 years and usually end up with more questions that what I started with. This single post has answered all of my questions.

I will be buying tax liens in AZ. I've decided to go with Equity Trust based on the recommendations here and my personal experience so far with them. No checkbook control... but then again it simplifies not having to set up an LLC.

Anonymous said...

So, here it is September 2008 in a very volatile market. Does everyone still feel the same about self directed IRA's? Other than property values going down on investment property you've purchased through your LLC, is there any way you can LOSE your money during this financial crisis?

Anonymous said...

Linda said...
Can someone answer or confirm the following:
1. I am forming the IRA LLC and will use the funds from 2 SEP IRAs and 2 ROTH IRAs to purchase a fourplex, I was told that once the LLC is funded, any future contributions to these IRAs can not be added to the LLC. Is this true?
2. LLC forms in California is subject to the $800 annual Franchise Tax Board filing. I was told this could be exempted by filing the FTB 3500 if the LLC has federal tax-exemption.
Since the LLC will have rental income therefore it has to pay URBT, does this mean I am not qualify to file for the FTB exemption?

Daniel Cordoba, CEA said...

I ran across this post and found the opinions on how the IRA LLC works quite interesting. It is a common misconception that it is just an off the shelf product that can be adopted to this special purpose need. There are four major items and countless smaller details that go into developing a compliant product. After consulting with literally tens of thousands of people interested in the product it boils down to these misconceptions.

1) The filing. a)Depending on the state the membership filing can be a crucial component. b)Many believe they can take an old LLC they have on the shelf and use it for this purpose. That is a prohibited transaction. c) Filing with the state is only the beginning step and most people don't go to the next crucial step and that is the operating agreement covered below.

2) The EIN filing. Almost everyone does this wrong and the IRS changes their mind every week about the "right way" to do this. But most reading this post and deciding to do this on their own will have the service set an appointment to visit with them because the the IRS is confused as to why they filed the EIN incorrectly. That will only lead to further investigations as to the operation of the LLC. And the cost for me to fix your problem will be multiple times the cost of implementing a correct IRA LLC.

3) The operating agreement. The operating agreement is the document that distinguishes the LLC from being a business entity to being a passive investment entity. The language determines the relationships between all parties and their responsibilities. For example, the average run of the mill off the shelf product product will have a statement similar to this: The LLC, its members or manger may encumber debt for business purposes. For an everyday LLC that is fine but for an IRA LLC it won't work. In fact, that language depending on the auditor you are assigned to may constitute a prohibited transaction because an IRA cannot encumber debt an/or you maybe justifying your position needlessly disproving a negative.

4) Moving funds. Time and time again moving the money into the plan correctly and then keeping it compliant during the investment process can be a challenge. And it is not so much that it is hard to do but that the logic most people apply is contrary to the law. Now it must be noted that the stated law and logic do not necessarily coexist otherwise, up until a few years ago whiskey barrels would not have been listed as a prohibited item. And in this electronic world we live in there is no shortage of advice or arguments that sound logical yet are inadvertently illegal.

Don't count on a custodian to help you because the FDIC will be very upset over the liability incurred by the custodian providing advice. There is a large custodian that is currently paying a considerable judgment for endorsing a product that failed. Why is the FDIC concerned? Because it could bankrupt a custodian and many will suffer for its misjudgment.

I suggest that the readers consider the effects of an IRS audit that goes wrong. Maybe a compliant product coupled with an IRS audit warranty is the way to go? How can I be so sure? Because we have been audited both as a company and individual products and passed in all cases. What assurance do you get from the DIY kits or Legal Zone? None it's "trust me" then love and leave you.

So to the reader is it worth a few extra bucks to do it right? Or heck let's roll the dice and go with what sounds logical! The previous participant to the blog who has investigated this process for 3 years has paid for the product 3 times over because the average mutual fund fees (that you don't see) are around 3 1/2% on average.

To view an authority site on the subject please visit http://www.myrealestateira.com

Anonymous said...

Jeff, Do you have the name of who I can contact at the DOL? I spoke to several people who didn't seem to know what a IRA-LLC was. I too would like to see something official in the law.

It seems that if the congress wanted us to have direct control over the funds then they wouldn't require an IRA to have a custodian at all. If they are pushing self direction of retirement plans do you expect that they will allow me to be my own custodian?

Cris said...

Kent:

I was reading your comments that an IRA LLC is not needed. I'm trying to choose between the LLC structure or not. My concern is annual administration. Do you have an annual valuation report (Form 5498)sent to the IRS. Books and Records for the assets in the retirement account, and documents for possible trax returns. I'm told these are the benefits of the LLC structure, and I want to make sure I cover these basis. Does Equiry Trust perform similar services?

Anonymous said...

I recommend avoiding the self directed IRA kit and form a self directed IRA with Sunwest Trust. They have their ducks in order.

The book/kit mentioned through out the article and comments seems to be incomplete and most of the custodians in the manual don't allow checkbook control. In addition, the manual is confusing and lacks the details needed to remain compliant. If you purchase one, then I think you are wasting your money.

Thanks for the blog post and everyone's commentary. I learned a lot.

Anonymous said...

Hi Chris,

Sorry, I have been away from this Blog for awhile.

To answer your question, yes Equity Trust does do the required annual paperwork with the IRS.

LLC route is a waste of money, don't do it is still my recommendation.

aadynamics said...

3-4-09
I just read all of these comments. This is the first time i have read a "blog." I happened onto it becuase I am also researching self-directed IRA's.
Lots of good info...and I just wanted to add. From my experience with custodians from all sorts of investments, the thing that you need to be most concerned with is are they going to be stealing your money.
Some of the custodians that I used to use were put out of business because money was being embezzled. People did lose money.

I was lucky. Just dumb luck. I had moved my money out before the losses were realized, for other reasons.

I do use Equity Trust only because they USED TO BE RECOMMENDED BY JACK MILLER...WHO IS THE GRANDDADDY OF OPTIMAZTION OF TAX BENEFITS IN REAL ESTATE INVESTING.

Jack has since moved on...but I believe it is because the founder of Equity Trust does not give Jack credit for teaching him practically everything he knows about using IRAs vis a vis real estate.

Anyway, they are expensive...but they do have good service. This does not prevent, however, there being embezzlement. They did, last year or the year before that, move their cash accounts to an FDIC insured bank. Thanks for the research!!!

Mark B said...

As one bit of "insurance" against IRS audits, I was thinking about taking the operating agreement from a reputable IRA LLC dealer to a tax attorney at a big firm and pay them to opine whether it's legal or not. In the event that the IRS finds a way to end the IRA LLC's and assess penalties, having a written opinion from a tax attorney is a defense that can help you get penalties waived. And that would "just" leave you having to pay taxes on the IRA.

Anonymous said...

There is a lot of information here that has been helpful. But I have just started looking into this as an option and would like to get advice from more veterned investors. With the primary factors to be taken into consieration being:
1) costs & fees (annual, transaction, set up, etc.)

2) FDIC insurance of monies and funds (so I can make sure that my investments are not lost) The economy is shacky right now and businesses are filing bankruptcy like it's going out of style.

3) type of real estate investment - rental property that receives monthly rental income (homes)

I don't have a lot to invest with yet and I can not take the risk that the IRS audit and disqualify my IRA. Although I am an attorney, I don't know much about the IRA LLC bit but my intuition is saying, it's a risky move that may lead the IRS to pick on someone just to make case law or get a clearer definition of permissible transctions. I can see this one coming and I do not want it to be at me and my families sacrifice. Any advice is more than welcomed. Does anyone have any recommendations as to a good reputable custidian that is FDIC funded and insured that does not nickle and dime me to poor death. There will be monthly transaction, rents to be collected, repairs to be made, property management company to be paid, etc.

Anonymous said...

Entrust charges 1% to leave them so a some point if you want to roll that money over to another custodian, the fee can be very hefty depending on the value of your account.

Anonymous said...

actually, entrust charges .5 % if you leave, not 1

Equity Trust Company said...

If you decide custodian is the way to go...check out this article on the 7 things to know before you start self-directed investing...

http://www.trustetc.com/news/selecting-custodian.html

Anonymous said...

Words of caution re "greed cometh before the fall":

http://ezinearticles.com/?The-Checkbook-Control-IRA---What-the-Swanson-Case-Did-Not-Do-For-Us&id=982693

Anonymous said...

Great wealth of information. Some contradicting but I am also in learning mode. If I by a REO, want to buy all new appliances, rugs, and a new roof every transaction goes tp the custodian, or is a checkbook LLc the way to go. I would hope the latter.

Anonymous said...

It is my understanding from talking to an account rep at Pensco that a spouse can be the "property manager" and write the checks as long as an accounting of the activity is submitted regularly, which I believe means quarterly.

Has anyone prepared a spreadsheet comparing the different types of fees these difference companies charge? Would be interesting to see...of course customer service, reliability, etc. would be important as well.
~Anonymous CA

Anonymous said...

I have already set up my IRA LLC and I have one area that I am not sure about, the tax return filing. If the LLC only has one parnter, the IRA, you cannot file a Form 1065, a minimum of 2 are required. Does this mean no filing is required or am I missing something? Any help would be greatly appreciated.

Anonymous said...

I, too, just stumbled across this blog while searching on the internet in order to educate myself about opening a self-directed IRA for real estate. There are many things to consider when deciding about going to the hassle and expense of setting up an LLC or not. Among them are, 1)what type of investments will you make, 2)how long will you hold them, 3)How many investments will you have, etc. If you are going to buy and hold vacant land for appreciation, why bother with an LLC as you will not be writing many checks in a year, so the custodian fees will be minimal. If you plan on buying numerous tax certificates (many of which will be short term holds) or managing rental property then it is possibly worth the hassle and expense of setting up an LLC. If you are 30 years old and plan to keep invest in alternative IRA investments until you retire, it is different than if you are 55 and about to retire and withdraw funds. One shoe does not fit all feet! An earlier poster, Jeff Nabors, runs an IRA Facilitator service that will help you decide what is right for you. They often use Sunwest Trust as custodians. His firm can be reached at www.nabers.com or 877-903-2220. i just spoke to them and found then low pressure and helpful.

I have also been considering IRA Services as a low cost resource. I checked BBB and they have had no complaints in 36 months.

One would think that there would be a reliable place to inexpensively obtain a DIY kit. After all, most legal documents are pretty much cookie cutter once tailored to the purpose at hand. But given the extreme potential cost of getting it wrong, its probably worth having an experienced professional assist with setting up an LLC. One wrong or omitted phrase could mean that down the road, you will be found to have retroactively disbursed your entire retirement account and have back taxes, penalties and interest to pay. Big Bummer!

Best of luck with your choices.

Rob

Unknown said...

Hi, i'm a young guy working as an accountant trying to get an edge with my IRA. Seeking advice from Nabers, Cordoba, or Anonomyous who posted a comment starting with "To the person with the Roth and UBIT questions". Or other experts who may be following this blog.

I have two issues I can't seem to figure out. #1: is the IRA LLC that is set up supposed to be a disregarded entity? I let mine default to disregarded but not sure if this was ok. #2: should the LLC elect to be taxed as a corp, s-corp, or let it default and be taxed as a sole proprietorship?

I have my LLC under custody of Sunwest Trust. With them for one year now. Online access. Excellent service. And the one free transaction a year lets you invest your annual contrib into your LLC fee free! I'm happy.

Anonymous said...

Has anyone every seen where the title company includes a 1099-S form "Proceeds from Real Estate Transactions" in the closing package for a self directed IRA? The property being sold is 100% owned by the Self-directed IRA account.

Anonymous said...

Here is the link from the IRS on the dirty dozen list, the allegation is no where to be found http://www.irs.gov/newsroom/article/0,,id=206370,00.html Where did you get your info Kenneth?

bugman said...

I went with IRA Services as custodian. In retrospect, wouldn't do it again. I had a lawyer prepare my LLC and operating agreement, but they rejected it because it did not contain the correct language. They would not say what the language needed to be, but would only refer him to somebody else who would only do the entire job for $1100. I'm now trying the ebay package that you mentioned above in order to obtain that correct language... hope it works. IRA Services has my money now, and I can't close on my property until this deal goes through. Will post results if/when it happens.

Anonymous said...

Anonymous, here is a cut-and-paste portion from the IRS website link you provided. Notice the last sentence.

Abusive Retirement Plans

The IRS continues to uncover abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers are using to avoid the limitations on contributions to IRAs as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets into IRAs or companies owned by their IRAs at less than fair market value to circumvent annual contribution limits. Other variations have included the use of limited liability companies to engage in activity which is considered prohibited.

Ginia said...

I have begun researching the self directed IRA as well. I found a company that has pretty good fees if your going to hold the property directly, My Retirement Account Services, www.getmyra.com.

I do have a question about the IRA LLC, who manages the LLC? If I manage it and have direct control that seems great, but how do I know if I do something that goes against the IRS Rules? Do all these transactions need to be reviewed each year by a CPA?

Anonymous said...

I am 73 years young. I have a Roth IRA with a stock brokerage. It has dwindled to just a few hundred dollars. I was considering re-funding it with the max allowabe (what ever that is)and transfering it to a self dirceted check book LLC type account to purchase and sell single family homes. I wouldn't hold them to rent, but sell them asap. Can I do this?

Tom Ihm said...

Awesome information. Thanks a bunch! i am glad that people are out there that want to inform the public and send them in the right direction. I have been doing a little research of late and this is an extremely great help. I applaud all the research and straight forward insight. Now I am sure as with anything, find the right fit for you and do your due diligence. Thanks for pointing out the minor inconveince it may be but know people that the upside is definitely better when being ableto control your own money than saying type A or B investment and watching someone else control it.

Anonymous said...

The last post on this blog was way back in march 2010 so don't know if it's styill active but that post indicated that the IRS Dirty Dozen list didn't include anything about LLC IRA's, well... here's the one straight from the IRS link that was provided, as follows:

"Abusive Retirement Plans

The IRS continues to uncover abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers are using to avoid the limitations on contributions to IRAs as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets into IRAs or companies owned by their IRAs at less than fair market value to circumvent annual contribution limits. Other variations have included the use of limited liability companies to engage in activity which is considered prohibited."

It couldn't be more plain that the IRS doesn't like them because they can be abused and I wouldn't be surprised if they conme after them again!

Anonymous said...

From IRS "dirty dozen", perhaps last sentence from below excerpt is what is being referred to regarding LLC legality?

"Abusive Retirement Plans

The IRS continues to uncover abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers are using to avoid the limitations on contributions to IRAs as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets into IRAs or companies owned by their IRAs at less than fair market value to circumvent annual contribution limits. Other variations have included the use of limited liability companies to engage in activity which is considered prohibited."

Anonymous said...

As I have posted over the years, an
LLC to have a directed IRA is not required.

I still promote Equity Trust and have owned real estate and transacted expenses as a checkbook but through the custodian electronic site.

Don't get fooled into the needing an LLC. Just over complicates and in most cases takes a bundle out of your pocket.

skewzme said...

In response to the last post by Anonymous, dated April 16:
Just got off the phone with Equity Trust. It does indeed seem you can achieve a self-directed IRA without the expenses, complications, and risks associated with managing your own IRA LLC. I plan to purchase at least 4 or 5 houses with my IRA, and most or all of them will require extensive rehabs, meaning many checks will need to be cut from my IRA to pay contractors and materials. I was told by Equity Trust that I can submit requests for checks to be cut and get them within just a few days. They offer electronic account access for these requests, and the checks can even be overnighted if need be. Now, I have read conflicting opinions from both attorneys and CPA's that are supposed experts on IRA LLC's with "checkbook control." Some say it's perfectly legit, others say it is questionable and could trigger audits. Why would anyone want to go the LLC route if companies like Equity Trust can provide this level of access combined with the safety of a custodian between you and your IRA transcactions, and a simpler list costly structure? Am I missing something?

Anonymous said...

Does my self directed IRA LLC have to file state and federal income tax returns every year?

Anonymous said...

Kenneth are you a shill for Equity Trust? I keep seeing this claim that the IRA LLC is on the IRS dirty dozen on this blog and I keep posting the dirty dozen list on the blog and it is simply not on there. Equity Trust itself admits it is not a non-compliant tool.

If you need Equity Trust or any other custodian to manage your IRA that is your concern but there are others that are further along in their investment maturity cycle. So get your facts straight before you go around slandering companies because you might find yourself in a law suit very very soon!

That might help you remember your mother's advice on manners.

Anonymous said...

skewzme, I have been with Equity Trust for 5 years now buying rental investment properties.

You can do the checkbook drafts yourself from within the Equity Trust website for your account or as they mentioned, they can write them as well if you prefer. I just went in and paid the property taxes for one of my IRA owned [roperties and also a plumber bill.

Don't get fooled into needing to spend tons of money setting up an LLC, it is not needed.

An no, I get nothing for recommending Equity Trust either, I just have real life experience with them and hate to see folks getting dupped into having to set up LLCs, NOT TRUE.

Anonymous said...

Regarding Equity Trust: I have been with them for over 3 years. They service is generally good for common investments, however i have had problems with them. When you send an email to them it is reformatted and assign to others to complete the processing. The processor never sees the original email. This has caused problems for me. When I closed an investment the manager sent the money to Equity Trust (ET) . However ET required me to get some kind of document I never heard of before and said I needed to get an attorney to sign it. I called 3 lawyers office and none of them had the form or would sign it. After several months and communications one of the operators finally mentioned that of there was an alternative to the form. During that period ET did not reduce my balance for the loss in that inveastment which caused my annual % free to be larger. I contacted them that the actual investment had been closed and they reduced the fee. But they still did not adjust my investment balance an so my annual fee is again being over charged. I then asked to a fee adjustment. It has been five months and several communications and they keep giving me excuses for not refunding the overcharge. Oh yea, they also charged me a late change when made a mistake in processing. That took a couple of months to resolve. For those who are doing real estate investment, don't forget your fees are based on the value of your investment balances, so once you report and increase when you sell it your annual fee will rise dramatically. I will be getting a checkbook IRA (LLC).

Anonymous said...

Kenneth, The point is that you are telling people that the IRA LLC in and of itself is on the dirty dozen when it is not. Creating a prohibited transaction with an IRA LLC is prohibited but those same prohibited transactions can also be made through a custodian. So watch what and how you say things that could be detrimental to a legitimate business. Follow your mother's advice "if you can't say something nice, keep quiet".

Anonymous said...

Hi, can someone who has successfully started a checkbook IRA LLC at a reasonable price list the company they have used. I want to switch from my Self Directed IRA at Equity Trust.

Anonymous said...

I used www.selfdirectediragroup.com , $1295 for the full boat set up + time with a 3rd parry attorney. Seems everyone uses the same custodian so it comes down to service and price. Best of luck.

Anonymous said...

Help! I have an IRA at Sterling Trust. Lots of mistakes for the last 5 years that I've had the self directed IRA there. They sent me the Deed of Trust and Note on the last real estate mortgage I'm holding - another mistake on their part. The man I loaned my money to filed bankruptcy in Dallas, including my mortgage. I just need a company to physically hold the mortgage as the bankruptcy court pays me monthly. Any suggestions? IRA Services maybe? Thanks, Phyllis

sam said...

Hello,
Does any one know if it is ok to transefer self employed 401 K profit sharing contribution to a self directed ira, My carrier is tellig me it is against irs rules to do so..any ideas

Anonymous said...

I have just started looking into this and want to thank everyone for the comments. As for the "negative" comments- they too can be valuable as none of the comments here should be trusted without doing your own personal research into the various companies and options and figuring out what fits your unique situation and goals. With that being said....

The vast majority of comments are related to real estate transactions. I am interested in starting a business from my home (small retail niche). Do the same rules apply?

Eliza Winters said...

Hey thanks for the information on the self directed IRAS. I am looking at doing a solo 401k and they sound similar. Do you know of any major differences between the two? Thanks for your help!

flued said...

I am considering investing around 100k in one property, and was considering setting up and LLC. But one thing that does not get mentioned is the ongoing cost for an LLC, for instance in my state of Ma, a filing fee of $500 per year- that is $5000 to the state over the next 10 years, not counting filing expenses, etc. Would it not be better, financially for soneone like me avoid the LLC option.

Rick said...

Great blog thread thanks everyone!

I am considering transferring my Roth IRA from Merrill Lynch to "Self Directed IRA Services Inc"
http://www.sdiraservices.com

Has anyone any familiarity with this outfit?

They operate out of Austin Texas and are owned by or affiliated wiht Horizons Bank.

With gratitude,

Rick.

Anonymous said...

Tim
Hello flued,
No need to form an LLC. Just call PENSCO- that's who I use. Purchased a short-sale townhouse in Phoenix AZ.This summer, piece of cake, forms are simple.Getting a good property manager is the hard part.

Nate Tanner said...

For property managers in phx:
Stay away from Go Renter, they are a complete nightmare!
One good one is Mark Brower Properties.

Anonymous said...

I feel like everyone is missing the point that the main purpose of creating the IRA LLC is ASSET PROTECTION. You should never own assets in your own name or in the name of your custodian. It can be sued right out from under you. The LLC gives you legal protection. Your best bet for asset protection could be a Wyoming IRA LLC due to their privacy laws among other things. This site also has some good food for thought:
http://www.escapefromamerica.com/2011/02/buying-real-estate-in-your-ira-or-pension-plan/.

Anonymous said...

I am Anonymous from above. Here is a really great place to start researching how to use LLCs (specifically Nevada and Wyoming LLCs) to protect your real estate assets in another state, and in general, to learn about the importance of Asset Protection: http://www.corporatedirect.com/ask-an-attorney/ask-an-attorney/

AC said...

I used Sunwest Trust for 2 self-directed IRAs. They are wonderful to deal with. Low fees and helpful staff.

Boyd Capital Group said...

Just found your blog. I work with 7-10 client investing with their IRA

Anonymous said...

Hi, I read this thread and opened a Self Directed IRA account with Equity Trust. I wanted to invest in Tax Lien in AZ and they need ACH information. As you know, Self Directed IRA doesn't have ACH as it is not associated with checking/savings account. The only option I see now is to open a IRA LLC. After reading this thread not sure what is the best option to open IRA LLC. I will try Ebay option...

Anonymous said...

I'm trying to figure out if it is preferable to continue to pay the annual maintenance fee on my self-directed IRA out of the IRA funds as I have been doing or to write a personal check for them outside of the account. Any thoughts?

I have had a self-directed IRA with Equity Trust for about 10 years (when I set it up, they were called Mid-Ohio Securities). I have had a few issues over the years, not the least of which was their neglecting to fill out a 1099R correctly when I did a rollover to a Solo 401K. This caused the IRS to go after me for $33,000, requiring me to write letters to the IRS, gather documentation, take time off work to visit my local IRS office, and speak with many inexperienced Equity Trust support personnel before I finally got it remedied.

Last year, I decided that I wanted to move the solo 401K money back to the self-directed IRA so I would have more control over how it was invested. After doing the rollover, I learned from Equity Trust that they cannot move money to the LLC that I was required to open 10 years ago. (The same LLC that I took the money out of to roll over to the Solo 401K.) So now my money has been just sitting in a cash account earning almost no interest until I can figure out what to do with it. I'm reluctant to open a second LLC to get checkbook control over the money, but I would like to combine the two pots of money (cash account and investment in the LLC) into one in order to invest in a property.

I pay almost $500 per year in fees to Equity Trust. Reading this blog made me start think in about looking into other options as I really don't feel that I've gotten my $5,000 worth out of the maintenance fees.

Susan said...

Susan here...

I Have a house with Pensco. It was a confused and dIfficult purchase transaction due to their conduct - inattentive, non responsive.

I want to buy other houses in an LLC and Pensco is NOT responsive. Their answering folks would not send my call to the LLC department. One told me to write an e-mail. Another said they could not talk to ne. I had sent them rough drafts of docs to get guidance. They have not responded in a week. I left a terse message with a VP's VMail who finally got back with me. I think they do not want me to be in a checkbook control because they can charge fees for every act, even when incompetent! Plus, the money is out of the account when it goes to the LLC thus reducing the amount of the account and the annual fee results in less $.

In reviewing the IRA LLC process, setting up an LLC is a piece of cake. Go to the corporate website and fill out the paperwork. Get the EIN, and send them money (Always the money) In Michigan, the annual fee is $25. FOr those whose states charge more, Check with other states and you may be able to form the LLC there but might need a registered agent for service of process. I AM NOT GIVING ADVICE, just thinking out loud.

But, that Operational agreement could be very very important. SInce I am already retired, I have less risk that a lot of you. I am forced to take distributions, so I could use a distribution for part of a house, if I wanted. But, I want to grow for a few years to head off the inflation hike when it comes.

I would like the name of an attorney who has done the operational agreement, to get it right. anyhone have any thoughts?

The Swanson case and the related IRS guidance indicates to me that an LLC is a great way to go that provides asset p[rotection as well as checkbook control which is needed for houses to collect rent, pay bills promptly, and general "I know what's happening" issues. If you do a prohibited transaction, regardless of whether is is in the SD IRa, in an LLC, or whetever, it is IRS bait. If you are careful not to self deal and keep everything arms length, you should be fine. Read the section on Prohibited transactions and review it often.

Interested Party said...

Hello, I'm new to this blog and find it very interesting but confusing at times! There seems to be a lot of opinions about the various trustee's, pros/cons of options such as LLC's, check book control, fees, the Dirty Dozen list, etc.
There has been talk of rental real estate investments, but nothing on property developement. I am turning 55 soon, and retiring after over 30 years service. I plan to buy properties in old established areas and build new homes. From beginning to end(Closing to Closing)this can take an easy 7 months. Any experience out there w/this type of investment? Feel free to advise! thanks!

Tuck said...

Hi,

I have been scouring the net on how to setup a one person self-directed IRA LLC. I like to do it on my own. I just enjoy getting my hands wet, so to speak. It seems straight forward for the most part except the operating agreement. I understand that a standard generic LLC operating agreement is inadequate. Can anyone send me a copy of a self-directed IRA LLC operating agreement.

Tuck

Interested Party said...

Hello
As mentioned in an earlier post, I am 55, retiring and having to roll over my 401K and lump sum distribution into an IRA. I plan to develope older properties in prime areas bu need a reliable IRA w/LLC and checkbook options.

Has anyone had any experience or ever heard of this IRA/Custodian?

http://www.checkbookira.com/Check_Book_IRA/Home.html

Please advise.

HillCountryTX said...

I am nearing 70 and opening a Self Directed IRA/LLC from The IRA Club out of chicago. They use IRA Services Trust Company and set you up with a LLC that the IRA Owns.

Interested Party said...

Thanks HillCountry,
the IRA Club must be an IRA investment consulting firm which provides the same type of services that I just found out Checkbook IRA does! Their's is a flat fee of $2000 and they use IRA Services trust Co as well!

This may be a naive question, and obviouly at this time I have not checked, but but why can't we go directly to IRA Services Trust Co?
I will investigate and post my findings!

Elkhorn said...

I to have looked long at this but for a different reason and looks like our Imperial government has forced me to it.

I trade in the forex market. Last spring the Dodd/Franks law just about ruined that trading in the US by imposing restrictions on what leverage US based brokers can offer and against hedging and imposed fifo rules. This puts US investors at a great disadvantage to say the least. They have bullied any foreign broker that has offices here to abide by these rules and browbeat a majority of the foreign brokers into refusing to take US clients at all. Finding foreign brokers to take US residents without these restriction is daunting, especially if trying to invest from an IRA or even finding a custodian that will send funds out of the country. This is unconstitutional - we are loosing our freedoms rapidly.

I had located Entrust and SunWest who will cooperate. SunWest has part of my wife's fund Placed. Was getting ready to have Entrust move my funds to foreign brokers. Enrust this week received a directive from the Commodities Futures Trading Commission that has taken the position that "... trading in commodities futures, including foreign currency, would be permitted for self-directed retirement accounts only if the administrator is registered as a futures commission merchant or introducing broker"(to quote the Entrust issued notice). Need I explain the implications of this.

Entrust, and I assume all custodians, will be restricted from placing any IRA funds with any futures or forex broker, in or out of the US. If they do get the broker registration they will then fall under NFA rules and there is no choices left.

Entrust says they can still place funds with an IRA LLC. I will get a LLC as fast as I can.

You can run but the places to hide are getting scarce. The government knows what is best for us hapless citizens. We must be protected. We are not smart enough to manage our funds. They know best. I do not doubt the rumor about talk in higher places of taking over our retirement plans and doling it out to us. Study the way democratically elected Hitler became a dictator and brace yourselves.

We have got to get our government under control and out of our business!! If it gets done most of you will have to do it as I am 78 and thank God won't be around much longer I hope................got to go open my LLC now

Anonymous said...

I looked at a bunch of companies before settling on Pensco their fee structure worked out OK for what I wanted to invest in (Intermodal Containers)and this type of asset has offer a great yield for me(15%) and doesn't have any issues for self dealing. 1st time visitor to your blog it's awesome.I'll be back often.

Anonymous said...

HI i am new to this i would like to roll my ira into self directed ira to buy rental but, who is the best I have seen Equity Trusts site but i have read bad reviews can you help. CC DETROIT

Interested Party said...

Hello out there! I've now received my lump sum pension and ready to move my funds that were temporarily parked in a Scottrade IRA, to a checkbook controlled IRA LLC in order to buy/develop Real Estate! Has anyone had any Dealing w/"Checkbook IRA"? They are a Facilitator who uses IRA Services as a Custodian. Any other recommended facilitators out there besides "The IRA Club" as mentioned by Hillcountry back in March. Please respond!

Mat Ericcson said...

If I buy property with the funds from my IRA how do I collect rent, or handle repairs, taxes, etc.

Cater Biz said...

Mat
FYI: Before you set up a LLC check out your state's tax rate/fees on profits for a LLC. You might not need to set up an LLC. Look into LLP or LLLP if allowable in your state. If not check out registering in NV or Delaware. These fees could be a real deal breaker.
E in CA

Unknown said...

Self directed IRAs are definitely the way to go if you want to invest beyond traditional wall st. investments.
You do have to be careful as you become the sole manager for the llc and there are prohibited transactions that are illegal for IRA's and there is no one there to stop you.
I would recommend Broad Financial as their staff helps you through the prohibited transactions.
For self employed individuals they also have a Solo 401k which is usually a much better option and is more flexible. See Self directed IRA vs. Solo 401k.

Lava Lady said...

Can anyone recommend an insurance company that offers affordable landlord policies on property held in a self-directed IRA?

I'm purchasing my first rental. My company, The Hartford, told me they can only insure property held by individuals. A local agent gave me a quote, but it was more than three times the amount of my own homeowner's policy (in the same neighborhood and with higher coverages).

My custodian isn't allowed to recommend an insurance agent. I appreciate any tips you can offer. Thank you.

Bonnie

Nate Tanner said...

@Lava Lady: State Farm can insure in the name of an LLC, if you're using an IRA LLC. I don't know if they can insure in the name of the IRA directly but probably so.

lar185 said...

Has anyone opened a SDIRA with either Equity Trust or Broad Financial? if so can they share their experience! One has check book control other does not..any comments?, Also is the LLC the way to go for rental property for added protection or not? THANKS!

Anonymous said...

I am a 15 year insurance broker and know State Farm, Allstate etc very well. None of the captive agencies will insure a home owned by a IRA LLC because the policy is then considered a commercial endeavor. Most individual policies have requirments that there must be a person as the primary insured but LLCs are ok to add as additional insured. There are actually very few companies that want this type of policy for a variety of reasons, the most obvious being it doesn't fit into a tidy box with lots of data on how to rate the risk. If you State Farm Agent tells you they can do it go somewhere else as the policy will look great until you have a claim. I write these policies on a regular basis and they usually are more than a typical home/rental policy but I don't know what good it does to pay less money if they won't cover the claim. Pay the right amount and when the storm hits they will pay you back. You can call any established broker or my # is 480-656-1186. Good luck to everyone.

ThosInMN said...

I'm a small investor used Sunwest Trust for four years for our self-directed Roth IRA to buy some RE (mostly land), also to lend hard money to others' deals. I was considering changing until I found this site, and saw what others charge. Though Sunwest has raised their fees a bit, I've been pretty happy with their service and prices.

Anonymous said...

My anecdotal reply: I successfully rolled a profitsharing plan into a traditional IRA in 2007. Not self-directed, I am about to do that next, but my former profitsharing plan is now called "rollover IRA" so I think that when I transfer this one to a self-directed one, it will be treated as such. -Mom from Calif.

amzalag said...

Writing to Elkhonon -
I, too, am looking to do this for forex - can you respond if you were successful and the procedure and mistakes I should avoid. I was thinking going the solo 401k route. what are your thoughts?

Chez said...

I have been with Equity Trust Company since 1998 --- when I first opened an acct with them they were under the name Mid-Ohio Securites annd several years later changed to ETC -- I have done over 50 real estate deal during this time and have grown my IRA to what I feel is a substantial amount -- I've been watching too much "AMERICAN GREED" ON CNBC and now am worried that one day someone will be embezzling the funds or they'll go bankrupt and I'll lose what I've built --- can anyone comment on my concerns -- how can I be sure ETC is the real deal? what can I do to calm my fears ? any comments are welcomed -- I've not experienced anything that smells bad or any red flags at ETC -- but I'd hate to have my head in the sand -- thanks

Anonymous said...

http://online.wsj.com/article/SB10001424052702304818404577350202576759664.html

Above is a site in the Wall Street Journal regarding a few lawsuits with ETC. I don't know that there is any one company that you are not going to question their integrity. It's a chance we all have to take when investing. Sorry I can't give a more promising answer. Best of luck!

Marco said...

I am glad I found this blog, great information. I am looking at the IRA/LLC model and am a bit overwhelmed by how many providers are popping up. I have found two that have the same fee schedule www. broadfinancial.com and www.cureitfinancial.com and one that was almost double! the cost of the other two but seemed to have been around the longest, Guidant Financial. Does anyone have experience with these firms? Any basic feedback would help.

Thanks,

Marco

Anonymous said...

Don't go with Guidant, period! Hope they have changed their practice to more professionally by disclose all the FEES UPFRONT. Then, it is up to the consummer to make choices. Delt w/ them Nov/2011 ended to demand full refund and closed out the account. It was not easy to get the $ back. I have to tell you this. It took me extra step to file a report (lots of my time) or else they refused to refund $2445 eventhough their agent missed lead other fees besides originally said that was LLC filing, wires, annual LLC, etc...Once I wired money to their Trust company that they utilized for setting up my account "ProvidentTrust"--ah haha...by now, more and more fees.

Anonymous said...

This is exciting, looks like I get to publish post #100 on this august blog. Had a question about (self-directed) Trusts for IRAs. Understand that some investors use them instead of an LLC. So the "For-Benefit-of-IRA" would be the Trust Beneficiary, instead of the LLC Member (shareholder). Anyone know where to find more information on this? Thanks!

Tom said...

Best option to set up a self directed IRA LLC is ....Self Directed IRA LLC!

Clck here to check them out

Unknown said...

This is a great article. People should learn about self directed ira rules because they can be very important. I have done plenty of research on legal ligation online and learning about IRA rules would help.

Anonymous said...

Is anyone familiar with UDirect? I believe they are a fairly new company. We are looking to open a Self Directed IRA to build and sell homes from the ground up. These would be for immediate resell and not kept as rental properties. Does anyone have any experience with UDirect and Polycomp? As far as customer service goes they have been the most informative and call when they have said they are going to call.

All advice appreciated!

Thank you!

Anonymous said...

Hey Nacho, I suggest to check the latest updates self-directed ira in the internet. But the best one for me is IRA:LLC. The IRA LLC gives self-directed IRA investors more flexibility, security and simplicity to their IRA investments. For details on the IRA LLC visit http://irallc123.com

Anonymous said...

One of the few things the Federal Government has done that doesn't totally piss me off, is the 401K program. I mean the whole concept still pisses me off, just not totally.

Anyway, I read some articles about setting up a IRA/LLC and ran into a lot of "give me a bunch of money and I'll tell you the secrets to the IRA/LLC".

In the end, I decided to do the process myself and it's not as hard as the bloodsuckers try to make you think.

I am writing a blog about my experiences and including all the documentation that they try to sell you for thousands of dollars. So far I have had zero problems and all my retirement funds are now in a bank account with me having 100% control over how they are invested.

If you want to see how I did it, check out my blog. It's free, but I'm not an attorney or accountant, so the advice may be worth exactly what you pay for it.

www.irallcguide.com

Dan Cordoba said...

I have read several posts on this blog from people who believe that properly configuring the IRA LLC is a simple task and paying a fee is simply out of the question. Perhaps, since our firm has produced over 5,000 of this product over the years we may have a bit of a different perspective. I'll discuss just a few items.

What the fees pay for
We charge a one time fee for the product but we offer lifetime support for the product. Generally speaking from the end of the year and through tax time our phones are quite busy with reporting related questions typically, from CPAs. You would think that they would know the rules but they don't and we are in constant education mode. Why would you know the answer?

State compliance.
I find that a majority of DYI have their structures disqualified by the state. That may lead to vulnerability to suits and to the IRS calling your structure non-compliant with a distribution declared. Is your operating agreement in agreement with the state statutes or are you relying on state statutes? A big mistake if your are relying on the state to protect your assets.

Operating agreement
Once again, in the case of an audit the IRS will assign a seasoned auditor and that auditor will pick apart your off the shelf or home brewed operating agreement. There has to be proper language that defines the manager's role and relationship in the program, the role of the custodian, and the limitations of the IRA account. We have successfully had 50 IRA LLCs audited and not one failed for structure.

How are assets handled in the operating agreement? Are you managing metals on your without a custodian designated storage facility? You need your ducks in a row so the IRS again, does not call your situation constructive receipt of IRA funds.

Continuation planning
What happens if you become disabled or die? How do your loved continue the project or shut it down? Getting in is easy getting out can be very painful. Our structures are designed to facilitate the transitions correctly at those critical and emotionally charged moments. Why put your family through that trouble?

Being your advocate to the IRS or the custodian.
Let's face it you are a number and a statistic to both the custodian and the IRS. We have bailed out several people with hundreds of thousands of dollars in distribution challenges at stake. And it cost them nothing if we could not help them or if it was beyond our representation capabilities then we sent them to a professional that could represent them successfully.

So where should you buy an IRA LLC product?
If you find a company that is selling them for $1,000 to $1,500 they are probably just providing a very rudimentary product, enough to get you by the custodian. I have seen their products some are not much better than legal zoom operating agreement incorporating a couple of paragraphs describing the attributes of IRC 4975. They probably work out of an executive office or home. And until you need the help, you got a great bargain. More than likely their desktop, laptop or maybe a server lacks the needed security to protect your SSN and other sensitive information.

The moral of the story is this.
Can you do it yourself? Yes.
Can you fool the custodian? Easily, demonstrates that.
Will your IRA survive a law suit, disability or death. Maybe but with great difficulty. The operating agreement for our friend referenced above won't.
Will it pass IRS muster? Depends on who your auditor is and their background. Most IRA LLC audits now go to select individuals who know how to rifle shoot their questions. You have a reference base of one unit and fellow bloggers, we have a reference base of 5,000 units and the review of thousands of professional eyes.
If you get in trouble what will you do? Now you will have great difficulty finding adequate knowledge and experience and you will spend a ton of money solving your problem with a maybe strongly attached.

If you are willing to listen, learn and be reasonable we would love to see you at

Anonymous said...

This is really informative post and I personally would like to appreciate the efforts. We are also dealing in same field. Once again thanks for your post.

Nancy F Mills said...

Thank you for this forum. Very informational. I am brand new to all this but want to convert a traditional IRA to a self-directed IRA, under which I can hold a mortgage. I am researching several custodial firms including Entrust, which did a great job managing my 1031 exchange a few years ago. One of the companies I'm in touch with is a division of Horizon Bank called SRIRA. They have been very prompt and attention in answering my questions.
I also contacted Equity Trust and found them to be informative. Their fees are a bit more. However, both companies charge what I consider very reasonable set up and maintenance fees.
Anybody had any experience with Horizon's program? Theaccount set up fee is $25 and the annual fee is $175. It is only a $30,000 investment, but these fees sound quite low.
Are there any costs I might be missing?
Also, once the payments start coming in and accumulating, can I buy stock with them in the same IRA or do I have to transfer them back into my traditional, or ???
Thanks everyone!