All Forum Posts by: Gil Hartman

The next step would be locating and putting an offer down on a home. After that, you would submit the proper documents to the IRA custodian for an earnest money deposit. Also, would Investor X be financing? If not, $100K has to be enough to cover closing cost, repairs, maintenance, etc. until the property starts producing income. I always recommend making sure you have a 5-15% cushion in the IRA, depending on the property.

Hi Dennis, I would call around to different IRA custodians and discuss the process. There is a ton of information out there regarding this scenario, and much of it is conflicting.

@Dmitriy Fomichenko I agree that having a custodian doesn’t mean superior service, which is why I always recommend calling around.

I’m sure there are cases where people don’t require or have use for a custodian. However the thousands of people that we’ve helped every year have mostly found having a custodian to be invaluable.

Also, at no point did I say that the custodian takes on responsibility. In fact, I tell every client that due diligence is on behalf of the client.

And last, while I agree that, in some cases, having solo 401K can be more beneficial over an IRA, you absolutely need to weigh out each plan.

At the end of the day, you are spot on: Education is the MOST IMPORTANT aspect.

@Daniel Dietz The father's IRA is also considered a disqualified party (for example, you couldn't sell an asset from your IRA to your father's IRA). However, you can still do a scenario like this by having a special advisor and doing simultaneous, one-time funding of the LLC. This is why it's good to go with a custodian that knows the ins and outs of alternative investments.

A Solo 401K will allow for some tax advantages, specifically when financing is involved, but it's seemingly complex scenarios like this that are simple to a custodian and can certainly help keep you from any prohibited transactions.

Assuming you qualify for a Solo(K), there are some advantages over an IRA, such as higher contribution limits (tied to the profits of the business your Solo(K) is tied to)

I would suggest calling around to some IRA custodians. Most custodians don't charge transaction fees (usually it's a quarterly fee based on the value of the account). The benefit to having a custodian is having someone to keep you on the right track, not setting up a plan, giving you a check book, and telling you to have at it. You have resources at hand to make sure you aren't running into any prohibited transactions.

Hi @Rodney Walker , you can do a "checkbook IRA". You would establish a single member LLC, in which your IRA is the sole member, and you are the non-member manager. These generally require some additional third party oversight.

Some companies will establish the LLC for you, but that can be cost prohibitive in some scenarios.

@Dmitriy Fomichenko right, assuming he has something to tie a solo 401K to.

@Brian Parsons you should also contact the IRA custodians directly. While they can't give you advice, they can be pivotal in leading you down the right path and supplying you with the right tools.

Hi Kevin, whenever an IRA is involved, financing needs to come in the form of a non-recourse loan, the IRA can't guarantee anything. So should you default on the mortgage, they can only go after the property itself, not the IRA.

Custodians are the first type of company, and are usually the most common. They’re either a bank, credit union, or non-bank custodian approved by the IRS (usually a broker dealer who obtains IRA approval). Custodians are permitted to custody assets held in an IRA under IRC Section 408. They’re also subject to strict regulatory oversight at a State or Federal level.

Administrators are the next type of company. Essentially anyone can be an administrator, and their main function is to perform administrative functions only. Because of this, they also need to have an identified custodian for the self-directed IRA named in the account disclosure documents. Administrators are only subject to regulation if required due to profession (CPA or attorney), not for role as administrator. This allows administrators to be much more liberal in accepting assets and allows the ability to align with investment sponsors.

The third company type is a Facilitator. They educate investors on the process of self-directed investing or assist in setting up single-member LLCs for either "check-book control" or to purchase a franchise or ROBS (Roll-Over Business Startup). They may also provide administrative services for the LLC. Like Administrators, Facilitators must have an identified custodian for the self-directed IRA and are only subject to oversight on a professional level. They are also much more liberal in accepting assets and can align with investment sponsors.

So when you're looking for someone who offers a self-directed IRA, make sure you know the type of company you're dealing with. This will help when determining which company best fits your investment scenario.