I've looked at six different companies and the fees are all over the place. The cheapest so far is Sunwest Trust. Their annual fee is $225 regardless of the number of assets. Their application fee is $50.
Am I getting too concerned about the fee price? Is there a customer service aspect that I need to pay attention to that warrants paying higher annual fees?
Has anyone had dealings with Sunwest Trust?
Are you looking to have control over the retirement funds, place investments quickly and limit the custodian's involvement? If yes, then look into the IRA LLC or self-directed solo 401k.
The Self-Directed IRA and Solo 401k Similarities
- Both were created by congress for individuals to save for retirement;
- Both may be invested in alternative investments such as real estate, precious metals tax liens, promissory notes, private company shares, and stocks and mutual funds, to name a few;
- Both allow for Roth contributions;
- Both are subject to prohibited transaction rules;
- Both are subject to federal taxes at time of distribution;
- Both allow for checkbook control for placing alternative investments;
- Both may be invested in annuities;
- Both are protected from creditors;
- Both allow for nondeductible contributions;
- Both are prohibited from investing in assets listed under I.R.C. 408(m); and
The Self-Directed IRA and Solo 401k Differences
- In order to open a solo 401k, self-employment, whether on a part-time or full-time basis, is required;
- To open a self-directed IRA, self-employment income is not required;
- In order to gain IRA checkbook control over the self-directed IRA funds, a limited liability company (IRA LLC) must be used;
- The solo 401k allows for checkbook control from the onset;
- The solo 401k allows for personal loan known as a solo 401k loan;
- It is prohibited to borrow from your IRA;
- The Solo 401k may be invested in life insurance;
- The self-directed IRA may not be invested in life insurance;
- The solo 401k allow for high contribution amounts (for 2015; the solo 401k contribution limit is $53,000, whereas the self-directed IRA contribution limit is $5,500);
- The solo 401k business owner can serve as trustee of the solo 401k;
- The self-directed IRA participant/owner may not serve as trustee or custodian of her IRA; instead, a trust company or bank institution is required;
- When distributions commence from the solo 401k a mandatory 20% of federal taxes must be withheld from each distribution and submitted electronically to the IRS by the 15th of the month following the date of each distribution;
- Rollovers and/or transfers from IRAs or qualified plans (e.g., former employer 401k) to a solo 401k are not reported on Form 5498, but rather on Form 5500-EZ, but only if the air market value of the solo 401k exceeds $250K as of the end of the plan year (generally 12/31);
- When funds are rolled over or transferred from an IRA or 401k to a self-directed IRA, the amount deposited into the self-directed IRA is reported on Form 5498 by the receiving self-directed IRA custodian by May of the year following the rollover/transfer.
- Rollovers (provided the 60 day rollover window is satisfied) from an IRA to a Solo 401k or self-directed IRA are reported on lines 15a and 15b of Form 1040;
- Pre-tax IRA contributions on reported on line 32 of Form 1040;
- Pre-tax solo 401k contributions are reported on line 28 of Form 1040;
- Roth solo 401k funds are subject to RMDs;
- A Roth 401k may be transferred to a Roth IRA (Note that from a planning perspective, it may be advantageous to transfer Roth Solo 401k funds to a Roth IRA before turning age 70 ½ in order to escape the Roth RMD requirement applicable to Roth 401k contributions including Roth Solo 401k contributions and earnings.);
- Roth IRA funds are not subject to requirement minimum distributions (RMDs);
- The fair market value (FMV) of assets held in a self-directed IRA is reported on form 5498;
- The fair market value of assets held in a solo 401k are reported on Form 5500-EZ;
- At termination, the solo 401k is required to file a final Form 5500-EZ and 1099-R; and
- At termination, the self-directed IRA is only required to file a form 1099-R.
Fees are important, but they are only one aspect of the equation in evaluating an IRA custodian. And, cost and quality of service do not go hand-in-hand, unfortunately. The most expensive player in the industry seems to spend all that money on marketing and not on quality staffing or customer service. I'd put SunWest about in the middle of the pack on both counts based on
Also of importance is what kind of self-directed plan you intend to establish. Custodians (generally "trust companies") are simply processors. They hold the account and can document investments made by the account into both conventional and non-traditional assets. They hold the funds, sign the documents, and handle all income and expense transactions for the benefit of your IRA and at your direction. This intermediary model works OK if your investment goals are pretty singular and static in nature, but not so well if your investment goals will be more dynamic or time sensitive.
An alternative approach is plans offering checkbook control such as the IRA LLC or Solo 401k. While a custodian may be used as the back end in the IRA LLC, they do not typically create the entity or provide advisory support. Adivsory and/or legal firms typically provide these types of plans. Such a plan will cost more to establish initially, but will eliminate processing delays and per-transaction fees charged by a custodian in the future.
There is lots of good information here on BP on all of these service options. Regardless, look for real client feedback and recommendations. Marketing a service is one thing, actually providing quality is another entirely.
I have found Sunwest's customer service in the past to be good. As others have mentioned, you may want to consider checkbook control via an IRA LLC or Solo 401k as a way to reduce costs and increase speed of transactions even more.
I am searching for companies that do self-directed 401K, but google is not much helpful. What are the keywords to search for, or are there any directories that I can reference?
Also, self-directed and solo 401K are the same or different?
you have 4 providers who commented on this forum post already, this should be a good start for you :-)
Solo 401k plan can be self-directed. But not every Solo 401k plan is self-directed (an example would be Solo 401k plan offered by major banks or brokerage firms such as Wells Fargo or Fidelity. Also you should to be aware of the difference between self-directed custodial Solo 401k vs. truly self-directed Solo 401k plan.
Dmitriy is correct, the terms "Solo 401k" and "self-directed 401k" are sometimes used interchangeably, though some Solo 401k plan are not truly self-directed. A self-directed Solo 401k will allow you to have checkbook control and invest into anything, including real estate.
Thanks for they reply everyone. Turns out my company plan does not allow rollover unless I leave the job, so that becomes a big roadblock.
Aha! Well, a reason to change jobs? :-)
I just completed a property purchase using self-directed IRA (rolled over funds from my previous employers' 401k's). I thought I'll share my experience so others can get insight into this semi-complicated process. You can read about my experience here: http://successwithyoursoul.com/how-i-used-my-401k-...
Looking back, I probably should have gone for an LLC to get checkbook control. The fees for every transaction + the mechanics of going through the custodian for everything is a pain. For example, every single mortgage payment will have a fee associated with it.
I have no regrets about investing my retirement money in real estate though. I'm all in for achieving my financial freedom goals through real estate.
@Nav Singh , thanks for sharing your investment journey! I enjoyed reading it and seeing that you have used several vendors that we are also working with and recommend.
Wishing you success in your future investment endeavors!
I'm glad to hear that things are working out for you.
I really like your blog. That was a great write-up. Do you consider yourself to be self-employed (either through your blog or through other sources)? If so, the Solo 401k might be the best way for you to get checkbook control.