Rental Property Investor · Carlsbad, CA · Member since 2014 · 127 posts · 28 votes
I am looking to set up a self directed IRA, and I've done quite a bit of reading on bigger pockets about it. I understand their is some risk, but I do like the additional investment options. I am trying to find a reputable company as the custodian. I live in the San Diego area so was interested in IRA Resources since they are local. I have looked online and there aren't many reviews, about 50% are good and 50% aren't, but most look a bit dated. I value the opinions of the people here and would like to hear if you have had any experience, good or bad.
It's great so see a fellow SoCal investor here on the forum, welcome! I don't have any experience with IRA Resources, it looks that this name is pretty new in the industry, so I can't give you any feedback about them but here are few tips that might be helpful:
@Justin R. gave you good recommendation, do that. Go to local REI meeting and talk to folks there and ask for some recommendations.
Keep in mind that the location of the custodian is of smaller importance. What's far more important is their experience and the qualify of customer service.
You probably will get hints on some other custodians, contact them and interview them. This way you will have few to compare.
You did not provide much details about your situation and your goals (how much is in your IRA, how you wan to invest it, etc.) but you may also want to look into Checkbook IRA (aka IRA owned LLC). This options will allow you to bypass the custodian and have checkbook control over your IRA.
Even though IRA Resources is located in our area, a lot of our clients use IRA Services Trust Company. They are located in the San Francisco area. They are quite large buy very reputable as they have been in business since the late 70s.
@Bruce Scannell I'd recommend you swing by the next NSDREI (https://www.nsdrei.org/) meeting in Oceanside. Every time I've been there, there are multiple custodians there ... looking for business, obviously, but also available to chat and vet in person.
I'm far from an expert in the SDIRA space, but from what I know it's not a business where scale really helps the client much. I wouldn't think a big outfit would have any particular advantage or disadvantage from an individual you meet and vet in person.
Thanks @Mark Nolan. I will look into them as well. Have you heard good or bad about Sunwest Trust in New Mexico? Theres an old thread here where most people seem happy, but its 4-5 years old.
It's great so see a fellow SoCal investor here on the forum, welcome! I don't have any experience with IRA Resources, it looks that this name is pretty new in the industry, so I can't give you any feedback about them but here are few tips that might be helpful:
@Justin R. gave you good recommendation, do that. Go to local REI meeting and talk to folks there and ask for some recommendations.
Keep in mind that the location of the custodian is of smaller importance. What's far more important is their experience and the qualify of customer service.
You probably will get hints on some other custodians, contact them and interview them. This way you will have few to compare.
You did not provide much details about your situation and your goals (how much is in your IRA, how you wan to invest it, etc.) but you may also want to look into Checkbook IRA (aka IRA owned LLC). This options will allow you to bypass the custodian and have checkbook control over your IRA.
Following are the similarities and differences between the solo 401k and the self-directed IRA.
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).
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 (Checkbook IRA) must be utilized;
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.
I would love to attend the REIA, unfortunately we just had our second child and the evenings are pretty booked...I'm not one to make excuses, but right now, if I can't bring a kid or two it won't work. Maybe in a a couple months when things stabilize again.
Here's where I'm at. I have a couple old stagnant 401s and I'm ready to roll at least one of them into a SDIRA to invest in some others apartment deals. One of them in particular has just under 100k and I'm thinking about starting with that one. I don't plan on the account being particularly active, just initial investment, then distributions, hopefully. I know some about the checkbook IRAs, but not much, so correct me if I'm wrong. They allow more freedom since there is no custodian but set up fees are higher, correct? If its an LLC, its probably subject to those high California fees as well, is that right? In my case, which do you think is better?
I know some about the checkbook IRAs, but not much, so correct me if I'm wrong. They allow more freedom since there is no custodian but set up fees are higher, correct? If its an LLC, its probably subject to those high California fees as well, is that right? In my case, which do you think is better?
Don't mean to hijack the thread, but since @Mark Nolan provided such an exhaustive comparison...
If a W2 wage earner maxes out a company sponsored 401k in a given year, but also has business income (let's assume a single-member LLC that lends or flips houses), are there Solo 401k options available?
I get that such a person would be limited to ~20% of the business' earned income, but curious whether a company-sponsored and solo 401k can play together or not.
Yes the rules allow for contributions to multiple 401k plans.
If you are self-employed and work for no one else, the maximum contribution that can be made to your Solo 401k for the 2016 tax years is:
$53,000 in employer (profit sharing) and employee (salary deferral) contributions (combined). If you are 50 or older by the end of the year, you may contribute an additional $6,000 as catch-up salary deferral contribution.
Working for More than One Employer
If you work for more than one employer, the contribution limit is increased.
For example, if you are self-employed and work for another employer, you adopt a solo 401k for your self-employed business and your other employer offers a profit sharing plan, you can contribute $53,000 to your solo 401k and another $53,000 as a profits sharing contribution to your other employer plan. Therefore, a total of $106,000 may be contributed in 2016 to both plans combined.
MPORTANT: Don’t confuse the Salary Deferral Limitations
Employer contributions
Made by the employer, these contributions are made up of profit sharing contributions, pension contributions, SEP IRA contributions, matching contributions on employee contributions (salary deferral amounts), and non-elective contributions.
Employee contributions
Employee contributions are amounts deferred by an employee from his or her salary.
Employer contribution limits are determined on a per-employer basis
Employer contribution limits are determined on a per-employer basis and have no effect on contributions made by other employers. Therefore, if your work for yourself (are self-employed with no full-time employees) and for another employer (e.g., your day-time job), the employer contributions made to your solo 401k stemming from self-employment will have no effect on the amount of employer contributions your day-time job make to the 401k sponsored by your day-time employer.
Employee contribution limits are determined on a per individual basis
The salary deferral contribution limits are determined on a per individual basis. Therefore for tax year 2016, regardless of the number of 401k (including Solo 401k), 403(b) and SIMPLE IRA plans in which you participate, your aggregate salary deferral contributions to all of those plans cannot exceed $18,000, plus an additional $6,000 if you are at least age 50 by the end of the year.
you need earned income in order to contribute to a Solo 401k plan, income from lending is investment or interest income and is passive (not earned) and therefore can not be contributed to a retirement plan. If you have a flipping business - that is different and should work. Please be sure to consult with a knowledgeable CPA to cement your plan.
I know some about the checkbook IRAs, but not much, so correct me if I'm wrong. They allow more freedom since there is no custodian but set up fees are higher, correct? If its an LLC, its probably subject to those high California fees as well, is that right? In my case, which do you think is better?
Actually, there is still a custodian with any IRA. An LLC owned by the self-directed IRA can give the IRA accountholder checkbook control, though there will always be a custodian to hold the IRA assets, even if the only IRA asset is the LLC. Being in CA is a significant blow to the IRA LLC, because of the fees charged by the state, but in many cases it is still worth it.
The Solo 401k does not have the custodial requirement, so no LLC is needed for checkbook control. There are eligibility requirements for the Solo 401k, however.
Your head will spin if you listen to what everyone's favorite custodian is, @Bruce Scannell. A better question might be, "What should I look for to choose an IRA custodian for my specific purposes."
First, not all IRA companies are custodians. Some are, some are administrators, and others are facilitators. There are differences between each that you should be aware of (though there's no reason to choose anything other than a custodian for an SDIRA).
Custodians are regulated by the IRS, receive state and federal oversight, and are allowed to handle and take custody of your assets. Custodians provide the greatest safety for your assets. Maybe not the best criterion, but if an IRA company uses the word "Trust" in their name, they must be a custodian. You'd be surprised how many popular IRA companies are not custodians.
Administrators process paperwork, are not allowed to take custody of your assets, and must ultimately use a custodian. That is, they are intermediaries. To my knowledge, there is nothing an administrator does that a custodian can't or won't do (and much safer). It appears from their FAQ page that IRA Resources is an administrator. You should inquire.
Facilitators help you set up accounts and entities. For example, there are many on this board that will help you set up an SD401k (for which you don't necessarily need a custodian). Our CPA help set ours up.
Pensco, who I'm not recommending, has a good write-up on all of this, here.
You will never visit your custodian, and since they are subject to federal law, it absolutely doesn't matter which state they are located in.
Fees are how custodians make money and many are very aggressive. All will publish their fees online and they are all different. Some charge by the transaction, some by the value of assets in your account, and some mix the two. If you are doing transaction intensive deals within your IRA, such as flipping houses where you need many checks each week to pay contractors, then you probably want a custodian that charges by asset value. If you are loaning money or buying notes, where you might wire money infrequently, then you want to be charged by the transaction. This is a personal trade you should make before you select a custodian, and you can't do this on the basis of a website recommendation, which might not apply to you.
Websites are good to learn which custodians provide good and bad customer service. For what it's worth, as lenders, we were happy with IRA Services before we rolled everything over into our SD401k plan some years ago. At the time, they charged by the transaction so they were very cost competitive for us, and we also found their customer service was excellent.
@Bruce Scannell@Mark Nolan My experiences with Sunwest have been so bad I am moving all my funds to another custodian. They have been taking 1-2 weeks just to sign documents on my behalf. The last document they lost for several days then magically found it again. In addition, the communications are poor and you never know what's happening with your requests.
Hi, I recommend Provident Trust (https://trustprovident.com/). They are one of the larger SDIRA custodians, with $B under management. Their customer service has been responsive.
California LLC's cost $800/yr to keep open, and the trust entity seems to be a way to avoid that fee.
What i wonder is if one can take their company SEP, transfer it to a SDIRA, then use the business trust to do the investments. Not worried about the debt-investment UBTI/UBIT part so not interested in the Solo...AFAIK!