How do you control your fee costs in Self Directed IRA?

Question

We are looking into how to put to use our IRA and ROTH IRA funds through Self Directed IRA investing, in either notes or rental properties. However, the account fees, transaction fees, asset registration, check fees (some custodians even charge for both incoming and outgoing), etc. form a good chunk of money eating away potential profit.

We looked into several scenarios: making a few loans at 10% vs one per year vs. buying a rental property (with and without leverage) and the administrator fees will eat 40-60% of net annual income. As an example, getting 20K to work to generate 2K in profit, $600+ will get lost to the administration costs.

What is your experience with SDIRA costs and how do you control them? Any suggestions on how to optimize investing through SDIRA?

Daniel Dietz · Answer

@Carla Young, I too was a bit overwhelmed when I first heard about 'self directed' plans. I looked into them mainly because I had a pretty sizeable IRA balance, but not much 'cash' to invest so I saw it as the 'logical' way to invest in real estate.

As far as the rules, there ARE a lot of them to be sure! But, there are also a lot of good resources too. I quickly learned of BP and signed up here and started doing a LOT of reading and asking questions.

There are many good providers on here of plans that are happy to share their knowledge with you and see if they might be a good fit for you, such as @Dmitriy Fomichenko, @Brian Eastman, @Justin Windham, and many others (look at their 'tag lines' as they are not supposed to 'solicit' directly).

On you tube there are some good videos explaining things from UDirectIRA, KKOS Lawyers/Mark Kohler, Matt Sorenson and others. There are quite a few good books too. A couple I am trying to picture the titles of sitting on my bookshelf at work are (I think) IRA Wealth, and Keep It!

This jist of the rules are no mixing with disqualified parties, which essentially mean linear relatives: parents, grand parents, kids, kids in law, grand kids. Brothers, sisters, aunts, uncles, cusins are all OK.

Also, you can never mix your own cash and your SDIRAs funds, nor can you and your SDIRA 'indirectly benefit each other'. Part of what this means is you can not personally do fix up work on your property - it would be benefiting by being worth more. You must use non recourse loan meaning no personal guarantee. Things like that.

It probably took me about 6 months to fully understand things. As long as you are willing to put in the time to educate yourself it is not that hard to learn.

Dan Dietz

Dmitriy Fomichenko · Answer

@Carla Young,

Regardless if you are new or seasoned investors, regardless if you are using custodian or have "checkbook control" - you must understand the rules. Custodian is not responsible for what takes place in your IRA - you are 100% responsible.

Your statement that there is "very thin line between the do's and don'ts" is inaccurate. The prohibited transactions (the don'ts) are very clearly identified by the IRS here:

https://www.irs.gov/retirement-plans/plan-particip...

So in most cases there is very clear line between the do's and don'ts. I always tell my clients however, if you are considering doing a transaction that you are uncertain would be in violations to the rules, simply ask. Ask before doing the transaction, not after.

Carla Young · Answer

@Justin Windham

You are correct, I can see how it could be an excellent learning experience, (self educating) and the key would be selecting the right provider, one that is communicative and has the time and experience to provide answers when needed.

Thanks Justin

Carla Young · Answer

@Costin Iorgulescu well said, I have the exact same issue and have been looking for alternatives.  I am not eligible for the self directed and I've looked at the checkbook IRA, however it seems like it is a very thin line between the "do's and don'ts" and I definitely do not want to gain the attention of the IRS.  @Daniel Dietz does it just seem more complicated than it really is?  Do you have multiple rentals that you run through your checkbook IRA?  @Dmitriy Fomichenko this is your business, so I'm sure it comes easy for you, however, would you recommend checkbook for new investors?

Thanks all!

Daniel Dietz · Answer

I think when doing rentals in a retirement account the only way to go for me personally is to go the 'checkbook control' method. Very little interaction is needed once the property in purchased.

Dan Dietz

Dmitriy Fomichenko · Answer

Costin,

this is common concern among self-directed investors. The solution to various fees would be Checkbook IRA (aka IRA owned LLC). This structure give you the ability to have checkbook control over your retirement funds, bypass the custodian when making investments and eliminate most of the custodian, transaction and asset based fees charged by the custodian.

Also if you are self-employed or own a small business you can set up truly self-directed Solo 401k plan, which does not require an LLC nor custodian and also give you checkbook control.

George Blower · Answer

@Costin Iorgulescu

The IRA LLC may be you best bet to control custodian fees. While not all custodians will hold an IRA LLC, IRA Services Trust Company will.

Stephen Valder · Answer

I only have experience with Equity Trust Company. There is a flat annual fee based on portfolio value. The only other fees I have had have been for wired funds, cashier checks, expedited or overnight mailings. Any payment by regular mail are not charged.

For 2017 it all totaled 0.2% of my portfolio.

I'm sure it varies by balance size and frequency of transactions

Carla Young · Answer

@Daniel Dietz

I appreciate your response, and I think you are spot on...overwhelmed is the perfect word.  I have read, listened and watched to the point that it all starts to get a little fuzzy!  I am going to step back and focus on the facts because I definitely see the benefits.

Carla Young · Answer

@Dmitriy Fomichenko

Understood, and I do know that I am ultimately and totally responsible for my IRA.  I will definitely continue to read and understand the rules prior to making a decision on whether it's the best route for me to take.

I appreciate the input and link!

How do you control your fee costs in Self Directed IRA?

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