Anyone who can help set up Self Directed IRA (SDIRA)?

10 Replies

I am a newbie investor with 403B of 90K with present employer and 20K from a former employer and would like to invest in real estate using SDRIA. I need help setting this up and have a few questions along with it:

1. Do I need a CPA to set up SDRIA?

2. Can I use funds from my 403B with my current employer?

3. I am hearing about Self Directed 401K with checkbook control, how does this compare to SDRIA?

Thanks in advance!

@Roushel Asuncion

You don’t need a cpa to setup a SDIRA. 

probably very hard to move $$$ from your current employer 403B but ask if you can move any of it to an Ira. Don’t confuse them by mentioning self directed-just say Ira.  The old $20k account should be easy to move

You do not need a CPA to set up a SDIRA, we do these all the time,  though I would recommend you advise with a CPA regarding the restrictions & tax implications of 403B though you should be able to rollover the 403b into the 401k with no issue.

A Solo 401k is only available for self-employed individuals who have no other employees other than their spouse. If you are not self-employed or starting a new business you need to consider the SDIRA.

You can contribute up for 52k a year in a Solo 401k, as well as, much greater flexibility into what you are able to invest in - real estate, precious metals, those are viable investment options which are not offered by traditional plans - hence why this is so valuable for REI's. An example, instead of using a LLC, if a Solo 401(k) uses a non-recourse business loan to purchase real estate the owner will not have to pay that 40% UBTI tax on any income generated by that property. There is also no UDFI tax if you leverage to buy real estate with a Solo 401k - but there can be (it depends) with a SDIRA.

A SDIRA, if you are not self-employed or starting a new business, should be structured for REI's as a self-directed IRA owned business trust. You will need to have a 3rd party custodian and SDIRA custodians can't give financial or investment advice, but having the right structure is important to understand how to avoid UBTI. Also, with a SDIRA there are three different types of transactions that could fall under the prohibited transaction rules: Direct, Conflict of Interest, and Self-Dealing. You need to be familiar with this as well and work with a company that can help you.

We always recommend REI's have a CPA or CFO service to work with, in the end, the right partner there can not just save you money but help you make more money.

Also new to self directed IRA. I see the forums Ultimate list of Self Directed IRAs. I will be consulting with my CPA for recommendations but I'm curious with a list this large, what key features would someone look for to determine who to go with as a custodian? Also anyone have personal experience with a particular company that could make a recommendation?

@David Kimmel

I have a SDIRA LLC which means I control what my investments are. I set the LLC up with a lawyer first, then i got a custodian that charges me $75 a quarter to hold my LLC. I write the checks, I pay all the bills. No custodian fees except for the quarterly bill. You have to "interview" a lot of custodians to see what custodian works best for you. If you don't go the LLC route or "checkbook control" the fees from the custodians can eat you alive. You need to educate yourself on prohibited transactions/UBIT/UDFI. All easy to learn but YOU have to learn it before you decide what to do. Solo 401k is another option if you are self employed but i'll let someone else explain that. Good Luck.

@Roushel Asuncion . I used Sense Financial Services to set up my Self Directed IRA. I highly recommend them.

For your questions, go to their web page. They have videos explaining everything you want to know about Self Directed IRAs.

Whether you use them or not, the videos will explain the ins and outs of self directed IRAs.

Hi Roushel! 

1. Do I need a CPA to set up SDRIA? - no, you do not need a CPA to set up a self-directed IRA, but I would definitely recommend sitting down for a consultation with someone who is knowledgeable about Self-Directed IRAs who can walk you through all of your different options. There are several different types of accounts that you can self direct that all have various tax advantages. A lot of times it all comes down to knowing how to properly use the various types of accounts, and figuring out which one works best for your personal situation.

2. Can I use funds from my 403B with my current employer? - More than likely, this 4013b will need to stay where it's at until you leave your current employer. With some employer plans, they may allow for an in-service rollover, but I have not encountered this very often with a 403b. If you are unable to move these funds at this time, I would highly recommend opening a Roth IRA and learning about different investment strategies that can help to grow a small IRA (since contributions are pretty limited each year)

3. I am hearing about Self Directed 401K with checkbook control, how does this compare to SDRIA? - The Solo 401k can be a great account for some, however it is much more complex than just a regular self directed Traditional or Roth IRA. In order to qualify for the solo 401k, you also need to be self-employed with no w2 or common law employees. This plan does have a lot of great advantages, but it comes with a lot of added responsibility.

I hope this helps! 

@Roushel Asuncion

Regarding SDIRA vs Solo 401k:

If you are self-employed with no full-time w-2 employees, you can set up a Solo 401k & rollover funds from a non-Roth IRA as a tax-free direct rollover and then invest in real estate.

Solo 401k vs. Self-directed IRA

A Solo 401k has several advantages as compared to a Self-Directed IRA including the following which specifically apply to your situation:

  • Unlike a Self-directed IRA, you can have the account for the Solo 401k at a bank or brokerage that does not charge maintenance fees and where you will have checkbook control.
  • Unlike a Self-directed IRA, if you use leverage (which must be non-recourse financing in either case) to acquire real estate with your Solo 401k the income will not be subject to Unrelated Debt Finance Income tax

General Considerations Re Investing Retirement Funds in Real Estate:

1. If you purchase via an IRA (as opposed to a 401k), you will need to open an IRA account at a specialty trust company which allows for investments in real estate. Unless you invest via an LLC owned by the IRA, you will not have checkbook control over the funds which means you need to run transactions (e.g. income, expenses, etc.) through the trust company who will need time to process the transactions and generally charge fees for each transaction. On the other hand, keep in mind that there are costs associated with maintaining an LLC (such as the $800 annual franchise tax in California).

2. If you are self-employed with no full-time employees, you can set up a Solo 401k through a 401k provider which allows for investing in real estate. In that case, you can simply have the account at a bank or brokerage where you will have direct checkbook control.

3. In either case, all of the income and expenses will need to flow in and out of the retirement account.

4. In either case and if you will you debt to acquire the real estate, it must be non-recourse financing. See more at the following link: If debt-financed real estate is acquired via an IRA, any income attributable to such investment will generally be subject to unrelated debt finance income tax.

5. In either case, you can't live on the property or otherwise use it for personal use.

6. In either case, you can't work on the property as it must be a passive investment (e.g. you must hire someone to fix the toilet and can't pay the expense with non-retirement funds).

7. In either case, you must purchase/sell real estate from/to an unrelated person and the real estate can't be titled in your name personally (e.g. in the case of the 401k, it would be titled in the name of the 401k and you would sign as trustee of the 401k).

8. In either case, you should verify that you are eligible to transfer the funds from your existing retirement account (e.g. if the funds are in your current employer 401k, you will likely not be able to transfer until you quit your job).

@David Kimmel I am familiar with Advanta IRA. Their customer service is very good. All custodians will have fees so it will depend on what you're goals are when setting up a self-directed IRA. I will be using mine to invest passively in apartment syndications.