Are there any fees to starting an SDIRA?

5 Replies

Aloha BP!

Currently trying to figure out ways and methods to continue to invest in RE with multiple vehicles (cash reserves, private money, SDIRA, etc) but I do not have an SDIRA set up right now. Are there any fees that come with creating an account? Should I look at a local company to start off with or can I try online sites through other BP member recommendations? Also, if and when I have an account set up, is the SDIRA treated like a normal IRA where I can continue to invest any extra cash into and reap any tax benefits that go along with it? Thank you all in advance. ALOHA!

Originally posted by @Justin Young :

Aloha BP!

Currently trying to figure out ways and methods to continue to invest in RE with multiple vehicles (cash reserves, private money, SDIRA, etc) but I do not have an SDIRA set up right now. Are there any fees that come with creating an account? Should I look at a local company to start off with or can I try online sites through other BP member recommendations? Also, if and when I have an account set up, is the SDIRA treated like a normal IRA where I can continue to invest any extra cash into and reap any tax benefits that go along with it? Thank you all in advance. ALOHA!

 Hi Justin,

Many others here that are on the other side of the SDIRA I hope will chime in but I am on the side of an investor. 

I went with MidlandIRA after looking at about 3 and made my decision on their customer service, fees as compared to others, web access. Most if not all have this but to answer your question, yes there are fees (in general) to set up an account and other fees like maintenance, wiring money (in/out), that you may encounter. 

I have one person that knows my account and investment objectives and has been very helpful. Hind sight of course I would not have known unless signing up. I asked a question and she was able to answer the question and went to someone to get answers she did not have.

I think QuestIRA was offering no account fee set up but that may have been a promotion as they had fees when I looked them over.

I have a traditional-Ira and a ROTH-Ira and the ROTH has the same guidelines as any other wherein you can contribute up to the IRS mandated amount per year. As far as the traditional, I don't co-mingle so that money essentially is for investing and I don't and have never added to it. I suppose you could but I don't know what rules are wrapped around that.

Thank you @Daria B. I've dabbled some money into different retirement vehicles prior to me learning about RE so it would be really helpful if I could get in touch with a company that would be willing to transfer all those monies into a single account that I could use for investing in RE. I haven't done my due diligence on any company yet but am trying to get a feel of what to expect when I do.

It seems as though you did your homework and found someone that fits your strategy and style. My hopes is I can find someone similar as well for me.

@Justin Young

Good question. Custodians like IRA Services Trust Company charge an establishment fee of $35.00 and then annual fees. Another option is open an IRA LLC or a solo 401k plan.

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; and
  • 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 (IRA LLC) 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 2016, 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.
Originally posted by @Justin Young :

Thank you @Daria B. I've dabbled some money into different retirement vehicles prior to me learning about RE so it would be really helpful if I could get in touch with a company that would be willing to transfer all those monies into a single account that I could use for investing in RE. I haven't done my due diligence on any company yet but am trying to get a feel of what to expect when I do.

It seems as though you did your homework and found someone that fits your strategy and style. My hopes is I can find someone similar as well for me.

 Once you call them and talk to them about their fees and particular set up you will get a better idea of which one to choose. I didn't know about the personalized rep, so to speak, until I actually called and they mentioned it, it wasn't an advertised feature. I didn't really take it to heart until I signed up and found the person they assigned to my account really was on top of things. I had questions and she answered them or found someone to answer and give me feedback. She even saved me money on my account fees because of the balance verses number of transactions I was doing.

Some people are advocates for the Checkbook IRA and while that is a good feature for some, it's not for all. My custodian does very quick turn around and understands what needs to be done when I make a request.

One of the custodians that I talked to is one that some investor friends of mine actually use and so far they seem to be happy with their choice.

Just keep talking to them and you will find which one works best.

Good luck....

Through the help of BP, I've set up a call with a contact from another member here. Thank you to all for your feedback. Are there any questions that you would suggest I ask the custodian prior to working with them?

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