Investor · Bothell, WA · Member since 2015 · 214 posts · 104 votes
My parents are getting ready to retire in less than 5 years. Dad is going to a lot of retirement seminars but most of them are after his 401K & pension money. Mom is an investor in heart, so she's been eager to get into real estate. I told them about self-directed or even a checkbook IRA, but I'm disappointed that there are very little out there on this topic. Even after years of going to different "free" retirement workshops, my parents have never heard of it.
Do you guys know a good website that can give them an unbiased summary of self-directed IRA? Is there a podcast, webinar or workshop?
Several BP guests mentioned it in the podcasts, but I wish there could be an episode on how ppl plan for retirement using real estate (the transition to more passive investment, notes, self-directed IRA, syndications...) Ya know, when you go from @Brandon Turnerundefined to Donald Trump :p
Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
10y
@Fay Chen There are many topics on BP about self directed IRA and Solo 401k. I would suggest doing some quick search for any specific questions you may have or post your questions here.
I think you already know the general concept of self directed IRA and Checkbook IRA. Some plans are advertised as self directed, but you still need to direct the custodians to make investments. A Checkbook IRA, on the other hands, invests in an LLC which is managed by the plan owner. You, as the plan owner, can write checks to fund investments. For real estate investing, that can be an essential advantage, so you don't have to go through a custodian every time you need to fix something at your property.
With the Solo 401k plan, if your parents want to invest in notes, or other real estate assets, you will also need to look for the self directed option. With this, you can skip setting up an LLC, plus the annual contribution limit is much higher.
Of course, it also comes with its own set of rules and regulations. Like Justin Windham said, you need to look into prohibited transactions, and learn what you can and cannot do when investing with a self directed plan.
Investor · O Fallon, MO · Member since 2016 · 2 posts · 1 vote
10y
Hi Fay,
Several years ago, I took the plunge as well into a self-directed IRA and I was nervous at first, but read several great articles on this and decided I had had enough of paying for someone else to take my money and give me no attention.
To start, I opened a broker account (like TD Ameritrade, eTrade, etc.) and funded it with my current IRA money. Next, I invested in almost 100% ETFs which seem to offer great diversification as well as less fees. After that, I created an account with FutureAdvisor.com and put in my broker account information and filled out the questionnaire - like how long until you retire, what's your style (aggressive, moderate, conservative, etc.). After I finished this, it gave me great information on what I should buy, the reason why and how much I should allocate. Of course, there are pay services that you can take advantage of, but I did all of mine for free.
Be sure to check out commission-free ETFs (FutureAdvisor will give you these once you go through and analysis).
I'm not a professional investor, just a regular guy looking to carve his own path.
Good luck and let me know if you need any thing else.
Investor · Bothell, WA · Member since 2015 · 214 posts · 104 votes
10y
Thank you, @J Claggett! Sounds like you did a lot of research! One of my dad's biggest concerns is dealing with the tenants & toilets in real estate or dealing with the paperwork when it comes to managing your own IRA. May I ask how much time you spend on managing your self-directed IRA? Do you find it easy to beat/match the returns from a professionally managed account?
Real Estate Investor · Portland, OR · Member since 2010 · 104 posts · 30 votes
10y
search self directed ,Non Traditional companies. Call them up and talk with them. Also, Ask where they are having seminars,meet ups ,Ect.
I know that Equity Trust and others have Bational Convention s .Remember, Pay for Education 1st Or You Pay for it Later, But you do pay for it.
My wife and I attended our NWREIA mtg and listened to several speakers over ~ 6 months we attended mtg and seminars before selecting the company. We used
IRA Advantage in Portland, but I know of a company in Phoenix and Texas. Then they did the docs - LLCfor our Checkbook IRA and our custodian is IRA Services in California. We 'll be attending IE Meetup next month - a rep from IRA Services is supposed to speak.
Just think of these guys as used car salesmen and Good Luck!
Real Estate Broker · San Mateo, CA · Member since 2016 · 6 posts · 3 votes
10y
Hi Fay, Try this one "www.iralending.cm". This will be a start, so you can take you learn and expend from it. What ever you decide to do, just ask the question - Is it too good to be true? If so, don't do it.
We have made the biggest mistake in our life. It is to trust the people we put all our hard earn money in our IRA. We lost everything and more during the down turn, and we are still not over with it yet. We no longer trust anyone else with our money. Neither should you and your parents, until you find someone that you can really trust.
I know everyone want your money or to make money using your money, but there are people out there too that will look after your interest as well. Not everyone is the car salesman, and there are many of us are professional that will look out for our clients interests. When it comes to investing, it will always have risk. Best of luck to you and your parents.
Real Estate Agent · Portland, OR · Member since 2013 · 85 posts · 37 votes
10y
Here is the book that I would recommend you and your parents to read by Michael Mcdermott. Live Tax Free Forever (through Your Solo 401K) (A Party Island Book) . He's also on Bigger Pocket, but not very active.
Banker · Nationwide · Member since 2015 · 4k+ posts · 1k+ votes
10y
@J Claggett gave a lot of info, but it looks like it was all with regard to traditional assets rather than the alternative assets most are referring to when looking for self directed IRAs and 401ks.
@Jim Sun I'm sorry to hear about your losses. This story is an excellent reason to consider checkbook control for your self directed investing. With checkbook control, YOU have the control of your funds rather than paying someone else to do it. With a Solo 401k, you can have checkbook control without ever placing your funds in someone else's hands. Not everyone is eligible for this structure though and with an IRA, there is no way around a custodian.
@Fay Chen If either of your parents will have earned income from self-employment, they may be eligible for a Solo 401k plan. If not, they could setup an IRA LLC for their retirement funds to invest into alternative assets. The IRA LLC is usually setup by a specialist firm who is working in conjunction with an IRA custodian. The IRA funds go into the LLC that the IRA account holder would manage. This gives the account holder checkbook control of the retirement funds.
Investor · Bothell, WA · Member since 2015 · 214 posts · 104 votes
10y
@Jim Sun, wow, sorry about your loss. Must be devastating to lose all the savings from many years of hard work. Thank you for sharing your knowledge and experience. Mom and I are immigrants from a country that took advantage of its ppl, so we don't trust anyone with our money. Dad, on the other hand, was born and raised here and worked in a very stable company for almost 40 years. He is more trusting and very risk-averse. So he wants to give the money to a financial manager and take an annuity.
@Justin Windham, dad has a W2 income. My mom sells cemetery plots and funeral services. So she's like a real estate agent for the dead. All of her income is commission. She's also considering buying some income properties overseas. So is she considered self-employed? I'm assuming Solo 401K is the same as a checkbook IRA, and IRA LLC is like a tax-exempt holding company to the parent IRA? I need to do more research with all the new terms @_@ Thank you for all the great info. I now realize I know nothing about retirement plans!
It sounds like your mom's income would be self-employment but it is possible for commission positions to be employee based. Does she get paid a W2 or 1099? The 1099 would be self-employment and would make her eligible for a Solo 401k plan as long as she does not have any employees of her own. The Solo 401k is similar to the IRA LLC in that they both allow for investment into alternative assets with checkbook control. The Solo 401k does have more direct control, however as one does not need the additional expense and administration of the LLC in order to have that checkbook control. This is because the Solo 401k does not have a custodial requirement whereas the IRA LLC does. With the Solo 401k, a trust is created to hold all of the plan assets and the 401k participant can be the trustee. If you'd like to learn more, you can call a couple providers and get some of your questions answered. This can help in starting to determine if any of the options may work for your parents.
Investor · Phoenix, AZ · Member since 2015 · 37 posts · 14 votes
10y
@Fay Chen
I hope your parents' retirement is happy and lasts decades. Self-directed IRAs are available from a number of vendors (eg Equity Trust, QuestIRA, Vantage and many more). Be very careful about checkbook control as making a single wrong step can blow up your IRA, make it taxable. The space seems crowded and the common factor is pretty high account fees. You really need to balance the likely gain from investments with the setup cost and annual costs from the custodian.
Having said that, I have a self-directed IRA and am using it to invest in performing promissory note (Some education on performing notes). This type of investment offers relatively secure, high returns that make the fees of self-directed accounts worthwhile for me. It also minimizes the "tenant and toilets" issue your father has.
Self-disclosure- I buy promissory notes, but also sell out of my portfolio in whole or in part. Happy to talk to you about these investments if you have some interest.
Nice post. I would caution anyone considering any self directed account to be aware of the prohibited transaction rules as having an account without checkbook control does not keep you safe either. Ultimately, you are responsible for the investments with any self directed account you have. Custodians usually charge less for accounts that have checkbook control. For IRAs, it is typically the LLC facilitator that charges the larger upfront fee. For the Solo 401k, there is no custodian (usually) and the plan provider has a one time setup fee and an annual fee. These fees altogether are usually less than not having checkbook control in the long run.
Investor · Bothell, WA · Member since 2015 · 214 posts · 104 votes
10y
@Fred Boyd, thank you for the warning on the checkbook control! Investing in notes is kinda new to me. I think it's definitely a possibility for my parents. They would need a "turnkey" company that can make the process easy. So I'm looking into PPR Note Co. I'll probably have to try it out for a few years and give them a reader's digest. Same as lending, syndication or landlording... they seem to accept the idea better if I have tried it and proved that it works.
Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
10y
@Fay Chen There are many topics on BP about self directed IRA and Solo 401k. I would suggest doing some quick search for any specific questions you may have or post your questions here.
I think you already know the general concept of self directed IRA and Checkbook IRA. Some plans are advertised as self directed, but you still need to direct the custodians to make investments. A Checkbook IRA, on the other hands, invests in an LLC which is managed by the plan owner. You, as the plan owner, can write checks to fund investments. For real estate investing, that can be an essential advantage, so you don't have to go through a custodian every time you need to fix something at your property.
With the Solo 401k plan, if your parents want to invest in notes, or other real estate assets, you will also need to look for the self directed option. With this, you can skip setting up an LLC, plus the annual contribution limit is much higher.
Of course, it also comes with its own set of rules and regulations. Like Justin Windham said, you need to look into prohibited transactions, and learn what you can and cannot do when investing with a self directed plan.
Investor · Phoenix, AZ · Member since 2015 · 37 posts · 14 votes
10y
The prohibited transactions are a fairly complicated topic. Say you buy a rental property with your self-directed Roth. What if there is a repair that is more than you have available in your account? You can't hire your son to work on the property, but you can hire your nephew or brother. You can't be the rental manager, but you can manage the investment? You can find ways to make it work, but it's pretty sophisticated/complicated for someone who wants a passive investment.
It is pretty simple to say you can't invest in collectibles or insurance contracts and you need to avoid prohibited transactions. It is not so simple to watch yourself if you're accustomed to writing a check and not looking back.
Walter Wofford is a wonderful resource on self-directed IRA investing (I'm a client but have no profit involvement.) Look him up online. Lot's of great training. Good ole boy from Mississippi, has forgotten more than I will ever know about real estate investing.
Investor · Jackson, MS · Member since 2014 · 1k+ posts · 769 votes
10y
My solo401K is with Dmitriy, and I have to say he does a marvelous job. I've emailed him questions literally at midnight and gotten answers right away.
Investor · Newark, DE · Member since 2015 · 248 posts · 178 votes
10y
@Fay Chen I wrote a short post listing self directed IRA custodians. I use Camaplan since they are local to me. Check out the link I posted that lists a few of the custodians.
Rental Property Investor · Ambler, PA · Member since 2015 · 2k+ posts · 1k+ votes
10y
Fay Chen I too am an engineer, launched rockets for 18 years, and found that real estate hooked up with self directed Ira or 401k is a great way to build wealth. Make as much passive income as possible and have as much of that income tax free as possible. I liked the Self directed Ira so much and had a pretty big sphere of influence that I started my own self directed company. Education is and doing things the right way is key to success. Many SDIRA companies have free webinars recorded on their websites-use them. Good luck.
Rental Property Investor · Springfield, MO · Member since 2013 · 109 posts · 92 votes
10y
Hello,
I opened a SDIRA several years ago at Equity Trust. But I found the process of finding deals and getting them to quickly send the money to be frustrating. Several others in my local REI group said the same thing. But they recommended Advanta so I have transferred my money to them and have been very satisfied.
I am not worried about losing any money because I have almost all of it in a local bank account with checkbook control. So only my trustee has access.
Since making this switch I have funded a couple small loans to other investors. And I recently rolled over more money from my tradtional IRA so that I can do a fix and flip myself. It is an awesome strategy!
Call Scott Maurer at Advanta. He is a great guy, an attorney as well. He will be happy to talk to you about it.
I opened a SDIRA several years ago at Equity Trust. But I found the process of finding deals and getting them to quickly send the money to be frustrating. Several others in my local REI group said the same thing. But they recommended Advanta so I have transferred my money to them and have been very satisfied.
I am not worried about losing any money because I have almost all of it in a local bank account with checkbook control. So only my trustee has access.
Since making this switch I have funded a couple small loans to other investors. And I recently rolled over more money from my tradtional IRA so that I can do a fix and flip myself. It is an awesome strategy!
Call Scott Maurer at Advanta. He is a great guy, an attorney as well. He will be happy to talk to you about it.
Thank you, Sherry. I wouldn't have thought about what's involved in the money transfers through a SDIRA. Does the custodian impose reviewing/underwriting process? Is that what's taking a long time for them to send money? I'm assuming with a checkbook control, you just literally write your own check because you are assuming all the liability. Right?
Investor · Newark, DE · Member since 2015 · 248 posts · 178 votes
10y
@Fay Chen I personally use CamaPlan, so far they have been fast. once I do the paperwork correctly. What I do like about them is when I call and ask a question, I usually get the same person on the line. I do hear good things about QuestIRA also but I cannot speak to them as I have not used them.
Real Estate Investor · Austin, TX · Member since 2015 · 65 posts · 50 votes
10y
Check out Quest IRA, Equity Trust, The IRA Club. Check out The Self Directed IRA Handbook written by Matt Sorensen. I use The IRA Club and I'm underwriting a mortgage out of my SDIRA so far so good.