Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
8y
Hello Donald,
Custodians offer self-directed IRAs custodial services, they do not handle the "checkbook control" feature. For that you need to employ services of a facilitator company (there are several professionals here on BP who are active on the forum including myself). The experienced facilitator company will usually make a recommendation on which custodian to use. I suggest you contact few different providers to consult/interview them, look for recommendations from other clients who used their services. This due diligence will help you make a decision who to use.
Investor · Pasadena, TX · Member since 2013 · 10 posts · 1 vote
8y
I use Broad Financial and am happy with them so far. It's been 4 years and I've had no issues with buying and rehabbing rental properties. They provided full service and guided me through the entire process of getting started.
Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
8y
Hello Donald,
Custodians offer self-directed IRAs custodial services, they do not handle the "checkbook control" feature. For that you need to employ services of a facilitator company (there are several professionals here on BP who are active on the forum including myself). The experienced facilitator company will usually make a recommendation on which custodian to use. I suggest you contact few different providers to consult/interview them, look for recommendations from other clients who used their services. This due diligence will help you make a decision who to use.
Rental Property Investor · Reedsburg, WI · Member since 2011 · 1k+ posts · 857 votes
8y
@Donald M. Davis, @Dmitriy Fomichenko lays it out pretty clearly how the relationship between the Plan Provider and Custodian works. It can be confusing at first ;-). We use Dmitriy for our SOLO401K with Checkbook Control and have been very pleased with their service. As he mentioned, there are several providers here on BP (look at their 'signature lines' to tell who they are) who could all be good choices - call a few and find a good fit. I personally am a big believer in using providers I have found on here - it feels like more of a 'personal' relationship and they tend to be very accessible.
Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
8y
Can you guys do a basic rundown on how this actually works? Not clear on the "checkbook control" aspect either
Right now I do a max contribution to my employment 401k (about 260 k in it)..... I have an traditional IRA with 70k I inherited from my Aunt on her passing....and my wife has a traditional IRA with about 90k in it...(and her work 401k has about 650k in it)
Based on some of the stuff I've read on BP, many are suggesting that I only contribute to my work 401k enough to get the march, and send more $$ to a SDIRA or Roth, since I can actually use the $$ without penalty etc.... the 401k $$ is not accessible etc etc....
Right now, my wife and I max out our 401k contribution to reduced our taxable income....we make about 200k between us both...how does changing to a SDIRA change that benefit?
A self-directed IRA does not really change your contribution situation. You and your wife are participating in your employer 401(k) plans for that purpose.
Depending on your income, you may or may not be able to make new deductible contributions to an IRA independent of your employer plans. This would be a topic to discuss with your licensed tax advisor.
What a self-directed IRA or Solo 401(k) accomplishes for you is the ability to diversify your investments into things beyond conventional assets - into things like real estate or trust deeds, for example.
This is not a means for you to access the funds for your real estate deals. Rather it is a way to redirect accessible retirement funds into real estate, with the aim of the IRA/401k achieving better returns by investing in something you know and understand, with a different risk/reward profile than conventional financial products.
In your case, the Inherited IRA could be setup to be self directed. Separately your wife's traditional IRA could be setup to be self-directed. The 401(k) funds are likely locked in those employer 401(k) plans until you reach age 59 1/2 while still working with the company or if you change jobs. The exception would be if any of the funds in the 401(k) were rolled into that plan from a prior plan - those could potentially be moved.
A Checkbook IRA works as follows:
A self-directed IRA account is established with a specialty IRA custodian. Think "E*Trade with different paperwork".
That IRA account then makes a single investment into a specially created LLC.
The IRA owns the LLC. You are the non-owner manager of the LLC and can direct the affairs of the LLC such as selecting investments, signing contracts, paying for expenses associated with the acquisition and maintenance of LLC investments and receiving the income into the LLC account. You will do this all via a LLC held business checking account at the bank or credit union of your choice.
Think of this kind of like having a conventional IRA invested in a single fund. You get to be the fund manager, and the fund can invest in anything the IRS rules allow for (not just what the custodian sells).
All of the activities of the LLC must be conducted at arm's length and exclusively for the benefit of the IRA. You may administer investments, but may not personally benefit such as by use of IRA held properties, compensation from the IRA (other than taxable distributions to you) or co-mingling of personal and IRA funds. Again, this is just a different way to put that tax-sheltered money to work. For those who know what they are doing in real estate, private lending, etc. this is a way to get better results and grow that tax sheltered savings more effectively.
Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
8y
@Brian Eastman....thank you for the explanation.....much appreciated..... I went onto @Dmitriy Fomichenko website and read a lot of the info.
No real plans to mess with the current 401k balances....just trying to decide if we should scale those ongoing contributions down and use the $$ somewhere else rather than keep maxing our contributions
So in very basic terms....I take my traditional IRA.... roll it into a SDIRA, with a custodian, get the LLC set up and the Checkbook IRA ability etc...... then I buy a rental house...which get titled under the LLC.......and ALL expense and income go in and out of the SDIRA...so profits/cash flow is what grows the IRA...and I can use that growing account to make other purchases etc.....so the investments are the houses I buy....not stock, mutual funds etc
That kind of basically sum it up?
Right now I'm trying to figure out other ways to save for retirement, but not lock up that $$ until I'm 59 1/2 etc...I'd like to be able to "use" the $$ to do more REI
It sounds as if you have a basic understanding. Of course, the principle of the IRA is exactly the same as the IRA you have today and it is locked up until age 59 1/2. Instead of the IRA investing in some stock or fund portfolio over which you have very little control, it can be invested in real assets that you understand and control. You are not personally "using" the money in any way, however. The IRA holds all the assets.
Lender · Hot Springs Village, AR · Member since 2014 · 274 posts · 92 votes
8y
I have set up and use a checkbook IRA. When I initially started researching this my internet searches led me to facilitators. They had some ungodly fees to set me up. I finally started searching custodians and found a custodian that allowed checkbook IRA's and charged no extra fees. The process is as @Brian Eastman described. I have used Advanta and have excellent service working with them. A word of warning for those with required minimum distribution. Be sure to keep enough cash in the LLC that you can pay your RMD. Being forced to sell real estate quickly to meet this requirement is never good.
Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
8y
The IRA I inherited from my aunt has about 70k in it....she was 80 when she passed and I have to take a minimum withdrawal every year of around $3500....so I'm not sure how that effects my ability to use this strategy.
It just means that you need to invest in a fashion that produces the necessary liquidity to meet your distribution requirements. This can be via holding back reserves and/or the income produced by the investments.
For IRA, RMD is the April 1st of the calendar year after you attain age 70.5.
For 401(k), profit-sharing, 403(b), or other defined contribution plan, it will be the later of April 1st of the calendar year after you attain age 70.5 OR retire.
If I set up a checkbook self directed IRA and I an 65 years old...and I need some money...do I get to waive the withdrawal penalty or does the money have to "season"( or wait a minimum amount of time) before I can make a withdrawal?
You can take distributions from an IRA without penalties after 59.5 however you would still have to pay ordinary income tax on the amount you take out.