SDIRA Fees: These Seem OK?

Question

$50 – application fee

$525 – annual administration fee ($90k-125K)

$95 – transaction fee

$30 – wire fee

I plan on funding 1-2 flip projects at a time (I'll be hands off other than visiting property before purchase). I'll be protected via 1st position and given mortgage/DOT. What are others paying?  Thanks.

Steven Hamilton II · Answer

Paul,

Creating self employment income is easy. Turn a hobby into a small business trying to turn a profit.  It ultimately doesn't matter if it does. Just by initiating the self employment you are allowed to open a solo 401k.  Does you wife do Avon or Mary Kay, or have a hobby she wants to turn into income?

Yes, that transaction fee in particular is obscene.

-Steven

Jeff S. · Answer

For the purpose you note @Paul Jamgotch, lending, these fees are obscene.  I used to have an SD IRA at IRA Services that I used to flip homes as well as lend.  Here is their fee structure. I was very happy with IRA Services and recommend them highly for lending.

Ultimately, I rolled everything in this account into an SD 401k, which is really the way to go, as @Dmitriy Fomichenko noted.  You might do a spreadsheet study comparing several SD IRA custodians, using your estimated annual transactions, if this is the route you want.

Some IRA custodians charge by the transaction, some by the value of your account, which you appear to be using (?), and some use a mix.  All will nickel-and-dime you to death with misc. fees such as wire transfers, notaries, etc.

You will have relatively few higher dollar transactions if you are lending so you likely want a custodian that charges by the transaction.  Once you down-select to a few, a more productive question here would be to ask specifically who currently uses them for lending.  Good luck, Paul.

Jeff

Jeff S. · Answer

You cannot take personal control of your retirement funds, @Paul Jamgotch. That's why you use a custodian. Your custodian will not let you write checks from your account but will write them on your behalf.  In this case, they will make an investment for you into an LLC that you control. As the managing member, you can then write the checks on behalf of the LLC.  It's a technicality to be sure, but legal.

You might also consider buying Create Your Own Self-Directed IRA LLC for Real Estate Investments & More! by Eric Archer, available here. It's an eBook with a wealth of information on setting up these plans, including many of the rules, pitfalls, legal interpretations, numerous links, as well as a sample LLC operating agreement useful, apparently, in Arkansas. In spite of the title, don't even think of setting one of these up on your own, but education is excellent.

Jeff

Mark K. · Answer

Matt, yes you are correct.  In reading the thread I did see where there is mention of flipping directly as opposed to funding via a loan, which cause me to write my post.  Thanks for the correction!

Matt Devincenzo · Answer

I believe Paul was talking about funding flips (lending) not actually flipping the property in his IRA, so he would not be subject to UBIT.

Mark K. · Answer

Paul, keep digging into this but I found out that doing flipping in a SDIRA you may be hit with UBIT.  You NEED to talk to a CPA who knows and understands this.

Dmitriy Fomichenko · Answer

@Paul Jamgotch

As an alternative to SDIRA you should explore the opportunity to using Solo 401k as retirement investment vehicle.  The benefits to you is that you can completely eliminate the custodial fees, transaction fees and asset based fees.

It has been discussed here on BP forum in details so if you are interested in learning more about it, you are in the right place.

Daniel Dietz · Answer

Hello,

I and my 2 partners used UDirect IRA Services out of California to do our SDIRAs. There fees seem very reasonable, very quick service, and also good referals to Lawyers etc....

One thing I liked about them is they encourage 'checkbook control'. Not sure it it would be of the same benefit to you doing flips (we are buy and hold rentals at this time). To me this is a huge advantage to be able to just take care of things on our own time frame. We simply set up a checking account for our LLC at a local bank and had UDirect fund it from the funds we rolled over.

Dan Dietz

Dennis Tierney · Answer

I guess I'm not sure from your post if these are one time fees for the tranfer and wires or or are these with each purchase. Is this a checkbook SDIRA or do they have to OK and fund each purchase? If it's the latter I would change to a checkbook IRA that allows you complete freedom of use for the funds without their "sticky paws" on your money.

Dmitriy Fomichenko · Answer

@Paul Jamgotch and another major benefit is that you don't need to have a custodian with Solo 401k, you make the investment decision and then simply write the check.  So any potential delays would be eliminated.

SDIRA Fees: These Seem OK?

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