Last Updated on August 17, 2020
When using a self-directed IRA to make investments, it involves many important tax rules and guidelines. You must must adhere to these guidelines on an annual basis. These rules are set in place for the self-directed IRA structure to be respected by the IRS (internal revenue service), and not run afoul of any federal income or state tax rules.
Self-Directed IRA Services for Establishing Fees
Before you establish an IRA, one of the most important types of self-directed IRA services is to make sure the proposed investment is not subject to the IRS prohibited transaction rules.
Prohibited Transaction Rules
Since the creation of individual retirement accounts, the IRS has permitted IRAs to make non-traditional investments, like real-estate. The IRC doesn’t describe what a self-directed IRA can invest in, but it does outline what investments cannot be made.
For example, a self-directed IRA cannot purchase life insurance, collectibles, or engage in a prohibited transaction. By following these basic rules, the IRA holder knows what investments he or she can make.
When you know that the self-directed IRA investment you wish to make will not trigger the IRS prohibited transaction rules, the next type of self-directed IRA service you need is to select an IRA custodian. It should be a self-directed IRA custodian to help administer and facilitate your self-directed IRA investments.
Working with a Self-Directed IRA Custodian
If you wish to make non-traditional investments, such as real-estate, tax-liens and cryptocurrencies, it’s important that you choose the services of a self-directed IRA custodian.
By law, every IRA must have a custodian or trustee, which means you can also establish your IRA with a bank, financial institution, or authorized trust company. An IRA trustee, also called a custodian, is the institution that administers your plan.
However, when you work with a self-directed IRA custodian (passive custodian) you can engage in alternative asset investments. On the other hand, most banks and financial institutions that offer IRAs only allow their clients to invest in traditional assets. This includes equities, mutual funds and ETFs.
If you wish to make alternative investments, like real estate, you must open an IRA at a self-directed IRA custodian, such as IRA Financial Trust Company.
The IRA custodian is responsible for complying with all IRS reporting requirements with respect to the IRA.
Self-Directed IRA Services Fees
Depending on whether you will elect to use a special purpose limited liability company (LLC) to make the IRA investments, the types of self-directed IRA services fees will differ.
When you make alternative asset investments with an IRA, you have two options:
1. Custodian Controlled
A custodian controlled self-directed IRA is a special IRA custodian that serves as the custodian of the individual retirement account. The custodian allows you to make all IRS approved non-traditional (alternative) investments.
The IRA custodian will invest the IRA funds at your sole discretion. The investment is held in the name of the IRA custodian, for example, IRA Financial Trust Company FBO John Doe IRA.
The IRA custodian is responsible for making all payments regarding the IRA investment, including paying expenses.
The fees for establishing a custodian self-directed IRA are quite reasonable. Fees generally are about $350-$500 annually, but do include some nominal transaction fees for issuing checks.
2. Checkbook Control
Self-directed IRAs with checkbook control allows you to make all types of investments as easily as writing a check. With a self-directed IRA with checkbook control, an LLC (limited liability company) is established, which the IRA will own and the IRA holder (you) will manage.
Because you are manager of the self-directed IRA LLC, you have authority to make investment decisions for your IRA on your own. In other words, you don’t need any custodian consent.
Since all IRA funds will be held at a local bank in the name of the IRA LLC, you simple need to write a check directly from the IRA LLC bank account to make an investment transaction. You can also wire the funds from the IRA LLC bank account.
An LLC is a necessity in order to establish a self-directed IRA with checkbook control. The set-up fee is generally around $1,200. The annul IRA custodian fee is typically low, such as $180 per year. There are no transaction fees involved since the IRA custodian is not truly involved in the operations of the IRA LLC.
Additionally, most self-directed IRA custodians don’t include any asset valuation fees.
Annual Self-Directed IRA Services
Important self-directed IRA services involve make sure that the self-directed IRA structure remains in full IRS compliance. That’s why it is important to work with a reputable and experience facilitation firm, such as IRA Financial Group, that can help you navigate the IRS rules and provide you the necessary types of self-directed IRA services you need.
Self-directed IRA services should include:
- Assistance with Disqualified Person and Prohibited Transaction Rules from in-house tax attorneys.
- Consultation services on the UBTI and UDFI rules from in-house tax attorneys.
- Access to experts who can provide relevant updates in the law relevant to your self-directed IRA.
Before establishing a self-directed IRA, it is important to understand all the relevant self-directed IRA services and rules in order to make sure your self-directed IRA investments will in compliant with IRS rules.
In addition, working with the right self-directed IRA custodian is crucial in terms of making self-directed investments easy and cost effective.
Get in Touch
Do you still have questions regarding the types of self-directed IRA services you should receive with a self-directed IRA? Contact IRA Financial Group directly at 800-472-0646. We will provide you a rundown of our services and answer any questions you may have. You can also fill out our contact form to speak with an IRA specialist today.