Last Updated on February 5, 2020
Beginners Guide to Self-Directed IRA
If you’re starting to learn about a Self-Directed IRA (SDIRA), begin by understanding what it entails. Foremost, a Self-Directed IRA, or Self-Directed individual retirement account, is an IRA that puts you in charge of your investments. With checkbook control, there is no custodian, except a passive custodian. Passive custodians offer no advice regarding your retirement funds.
Furthermore, a Self-Directed IRA allows you to diversify your retirement portfolio. You can do this by investing in alternative assets. These include real estate, tax liens, cryptocurrency and more. However, you can still make traditional investments. As you may know, these include stocks, bonds and mutual funds. Today, diversifying your retirement portfolio is one of the best and most secure investment strategy.
A Self-Directed IRA LLC with Checkbook Control offers unlimited opportunities. With checkbook control, you have complete control over your retirement account. Therefore, you can easily make any investment you please. There’s no need for a custodian’s approval. So when you want to make an investment, you can seize the opportunity by writing a check or wiring funds.
You can establish an SDIRA with Checkbook Control in a few steps:
- Establish an LLC (Limited Liability Company) – the LLC is a business entity, which can have its own checking account
- Your IRA (Individual Retirement Account) owns and funds the LLC, but you are the IRA Holder/manager of the LLC
- Next, your retirement funds transfer from your old IRA to your new Self-Directed IRA account
- The IRA now owns the LLC, and all income and gains you earn return to the IRA tax-free
- You will be subject to taxes, but not the LLC – however, you don’t have to pay taxes until retirement age
You can now diversify your retirement investments and invest in alternative assets, like real estate and tax liens.
Self-Directing puts you in the driver’s seat. However, you must choose the Self-Directed IRA with Checkbook Control. There is a second type of SDIRA, which is the Custodian-Consent Checkbook IRA. With both, you can invest in alternative and traditional investments. Yet each have different rules.
Custodian Control SDIRA: Some financial institutions will allow you to invest in alternative assets. Certainly not all. With this structure, the custodian generates its profits through annual valuation fees and transaction fees. In other words, you will be charged annual fees. Also, you will need custodian consent, which can delay investment opportunities. In some cases, the custodian can turn down certain investment opportunities. So as you can see, you are not in control.
Self-Directed IRA with Checkbook Control: As previously stated, one of the benefits of an Self-Directed IRA LLC is “checkbook control.” You benefit from this strategy because:
- You have full investment control
- Make direct investments – no custodian consent
- You establish an LLC, which is not subject to taxes
- Make all investment decisions
This is the option for IRA investors who want true investment control.
With your Self-Directed IRA, you can investment in practically any asset. However, it’s important that we clarify one important thing: certain rules do exist. These are the prohibited transaction rules. Your IRA cannot engage in any prohibited transactions. If it does, you can incur taxes and penalties. It may even lead to the disqualification of your individual retirement account. For this reason, you really should familiarize yourself with ins and outs of these transactions.
Read: Self-Directed IRA LLC: Prohibited Transaction Rules to help you get started.
Do You think a Self-Directed IRA is a viable option for your retirement plan?
Our specialists are available to answer any of your questions. We can also provide you with a consultation. Of course, this is when you’re ready to self-direct your IRA. When you are, we’re here to establish it for you. Contact an IRA specialist today or call us at 1-800-472-0646.