A self-directed IRA or Roth IRA is not a term of art and you will not find it anywhere in the Internal Revenue Code. A self-directed IRA simply refers to an IRA account which is permitted to be invested in traditional assets, such as stocks, but also alternative assets, such as real estate or even cryptocurrencies. In the last several years, the number of self-directed IRA accounts has grown significantly.
The best part of using a self-directed IRA is that you get to invest in what you know and understand. In addition, self-directed IRAs are often considered a valuable diversification option and hedge against inflation.
A self-directed IRA can be established for any type of IRA, including a Roth IRA, SEP IRA, and SIMPLE IRA.
1 | Checkbook Control Self-Directed IRA
The self-directed IRA LLC with “checkbook control” also known as a checkbook IRA has quickly become the most popular vehicle for investors looking to make alternative assets investments, such as rental real estate that require a high frequency of transactions.
Under the checkbook IRA format, a limited liability company (“LLC”) is created which is funded and owned by the IRA and managed by the IRA holder. The “checkbook control” self-directed IRA allows one to eliminate certain costs and delays often associated with using a full -service IRA custodian. The Checkbook IRA LLC structure allows the investor to act quickly when the right investment opportunity presents itself cost effectively and without delay.
A “checkbook control” self-directed IRA LLC is popular with retirement investors seeking to invest in alternative assets, such as rental properties, fix and flips, tax liens, or cryptocurrencies that require a high frequency of transactions.
2 | Custodian-Controlled Self-Directed IRA
A custodian controlled self-directed IRA offers an IRA investor more investment options than a financial institution self-directed IRA. With a custodian controlled self-directed IRA, a special IRA custodian will serve as the custodian of the IRA. Unlike a typical financial institution, most IRA custodians generate fees simply by opening and maintaining IRA accounts and do not offer any financial investment products or platforms. With a custodian controlled self-directed IRA, the IRA funds are generally held with the IRA custodian and at the IRA holder’s sole direction, the IRA custodian will then invest the IRA funds into traditional as well as alternative asset investments, such as real estate.
A custodian controlled self-directed IRA is popular with retirement investors looking to invest in alternative assets which do not involve a high frequency of transactions, such as the purchase of raw land or private fund investments.
1 | Checkbook Control
$180 annual IRA custodian fee
- One low flat fee
- No ongoing transaction fees
- No account value fees
- Fee is deducted from your account upon set-up
- Fee is deducted in quarterly installments of $45 beginning the following calendar year
2 | Custodian-Controlled
$360 annual IRA custodian fee
- Quick and Cost Effective Custodial Services
- No account value fees
- Fee is deducted from your account upon set-up
- Fee is deducted in quarterly installments of $90 beginning the following calendar year
All our Self-Directed IRA clients benefit from a flat annual IRA custodial fee, irrespective of account value. This is because we want all our clients to accurately report the value of their IRA accounts without being concerned that they might pay higher account value fees.
SDIRAs: Important Terms
LLC stands for Limited Liability Company and has rapidly become one of the most popular business entity types for new and small businesses, largely because it is considered to be simpler and more flexible than a corporation. The LLC business structure combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation.
LLCs, like corporations, are recognized as separate legal entities, meaning its members are protected from company debts, obligations, and liabilities. In the self-directed IRA LLC context, the LLC owner would be the IRA and the manager would be you, the IRA owner.
A SEP is a retirement savings plan established by employers, including self-employed individuals (independent contractors- sole proprietorships or partnerships) for the benefit of their employees.
Employers may make tax-deductible contributions on behalf of eligible employees – including the business owner – to their SEP IRAs. The maximum SEP IRA contribution amount is 25% (20% if you are self-employed or a single member LLC) of an employee’s compensation. The SEP IRA follows the same distribution rules as a traditional IRA.
IRS Form 5498 is submitted to the IRS by the trustee (IRA custodian) of your individual retirement arrangement (IRA) to report contributions, including any catch-up contributions, required minimum distributions (RMDs), and the fair market value (FMV) of the account.
The IRS Form 5498 gives the market value of all assets and cash held within the client account for the previous year and is used for tax reporting. The IRA custodian will forward IRS Form 5498 to the IRS electronically by May 31 of the current year for the previous year.
A Roth IRA is an individual retirement account that offers tax-free growth and withdrawals in retirement. The rules dictate that as long as you’ve owned your account for 5 years and you’re 59½ or older, you can withdraw your money when you want to and you won’t owe any federal taxes. With a Roth IRA, there are no required minimum distributions (RMDs) for as long as you live. In addition, contributions to a Roth IRA are not required to stop when you reach 70½, the cut-off age for a traditional IRA.
However, contributions may be limited by how much you earn—your modified adjusted gross income (MAGI) must be less than the annual limit set by the IRS.
The IRA Financial Trust Advantage
The self-directed retirement experts at IRA Financial Trust will help you establish your Self-Directed IRA or Checkbook Control IRA quickly and easily. Once your new Self-Directed IRA account has been established with IRA Financial Trust, we will assist you in rolling over your current retirement funds or make IRA contributions to your account. All rollover and IRA contributions will be held with the Northern Trust, where you will receive FDIC protection of up to $250,000 of cash before the funds are invested in alternative assets at the client’s direction.
What We Offer
- One low annual fee
- No annual account asset fees
- We handle all IRS reporting & administration
- Invest in what you know and understand
- Generate tax deferred or tax-free growth with a Roth IRA
- Diversify your retirement portfolio
- Specialized in Checkbook Control Self-Directed IRAs
- Expertise in cryptocurrency and ICO investments
It's easy—opening an account takes just minutes.
We're also here to answer questions! Don’t know which plan you qualify for? Have questions about a transaction? Our tax professionals will get back to you ASAP.
We can handle the process by phone, email, fax, or regular mail. To get started, fill out the form or call us at 1-800-472-0646. Our expert ERISA and tax professionals are on-site, which greatly reduces the set-up time and cost. You’ll be promptly assigned to one of them and they’ll help you get your self-directed retirement structure started.