Finding a Custodian and Understanding Your Options for a Self-Directed IRA

Welcome back to the self-directed IRA mini-series. In this installment, we will help you identify the right custodian and begin to understand the rules around holding real estate in your IRA. Here is a list of questions you may find useful as you interview prospective custodians for your self-directed IRA:

  1. What is the fee to open my account?
  2. Is there a fee to close my account?
  3. How will my account be structured? 
  4. If my account is an LLC, is there a charge or significant amount of paperwork involved with adding money to my IRA?
  5. What types of non-traditional investments do you service?
  6. What is your per-transaction fee for the different types of investments I might choose for my IRA?
  7. What paperwork is required each time I want to perform a transaction?
  8. If I have a Traditional IRA, will you help me with automatic RMDs (Required Minimum Distributions) or am I responsible for that process?
  9. Will you ensure the investments I want to participate in are permitted by the IRS?
  10. Do you have online account access so I can conveniently view my balances and holdings?

Once you’ve secured a custodian that you feel confident will be able to assist you and meet your needs, you can begin to consider what kinds of investments you’d like to buy in your new self-directed IRA. As self-directed IRAs open up many opportunities to you that are not available through mainstream brokerages or banks and you’ll want to be well-versed on your investment options. Some of the holdings you can buy with your self-directed IRA include:

  • Residential or commercial real estate properties
  • Mortgage notes or trust deeds
  • General or Limited Partnerships
  • Oil and gas ventures
  • Private Real Estate Investment Trusts (REITs)
  • LLCs (Limited Liability Companies)
  • TICs (Tenants-in-Common)
  • Private stock

It’s important to note that real estate investors can use leverage to acquire real estate in their IRA through a non-recourse loan. If you use leverage to purchase investments in your IRA, be aware that there may be income taxes to be paid by your IRA. There must be sufficient funds in the IRA’s cash balance to cover these fees. Stay tuned for the final installment in this mini-series, see Understanding the Rules to Self-Directed IRA Investments.

BlogMichael Shai