Self directed IRA - recommendations

I am planning to open a self directed IRA so I may invest in real estate in a tax-deferred program.

Is there a particular organization that others like or dislike?


My wife and I use Sterling Trust. They easily accommodate public limited partnerships as well as income property. Good to work with and they understand how real estate inside a self-directed IRA works.

I use equity trust. It was pretty easy to setup. I can’t say the same for transferring my money from my old IRA company. They tried to hold it as long as legally possible.

I use IRA Services. Look carefully at the annual fees. Some are flat fee. Some charge a % of the assets. Most have quarterly fees. Another consideration is the choice of investments. Some are no longer allowing investements into LLCs set up by the IRA owner.

I’m curious about something… do you guys sense that most people doing the self-directed IRA actually file the 990-T?

Not trying to put anybody on the spot. I just know that one of the firms that promotes this doesn’t do the 990-T… they just remind you to take care of it with the end of year statement…

Can you explain what the self directed IRA in RE is?

Every custodian that offers IRAs limits the investment choice to their own services. Charles Schwab, ETrade, and brokers let you buy stocks, bonds, mutual funds and anything else they sell. Banks let you buy CDs. These places don’t make money on rental property, flips, investemnts in private companies, promissory notes, tax liens, and the other activities investors use to make money in real estate.

Self-directed IRAs do not have these The only limits are things the IRS prohibits, like collectibles. limitations. You tell the custodian where to put the money and he makes the transfer. The major drawback is that the custodian must do everything. He makes the offer. He manages the property. He directs payments. That gets slow and expensive real fast. Many people direct the custodian to invest the money in an LLC and they control the LLC through the checkbook. The custodian is not involved with any transaction other than the initial transfer. Google Self-directed IRAs for tons of more information.

But again, a self-directed IRA may subject the IRA to unrelated business income tax…

(Er, although I’m getting the sneaking suspicion that people are ignoring the law here)…

Also, having your real estate inside your IRA means that you will be forced at some point to recognize all of your real estate profits as ordinary income. You will never get unrecaptured Sec. 1250 treatment, you will never get capital gains treatment, you will never get a step up in basis at date of death…

Good points about taxes. That’s why I use Roth IRAs.

I don’t worry about UBIT. The rules are pretty clear on what can and cannot be done. Anyone who wants to be extra safe can invest the IRA assets in a company where the IRA owners own less than 49%. Prohibited transactions, self-dealing, etc. don’t apply and payments to the IRA are tax deductible.

Er, not to put too fine a point on it, that means then that you are filing a 990-T to deal with gains from any leveraged real estate investments, right?

This is a rhetorical question… I don’t expect a real answer…

I would file if I used leverage or actually did anything in the IRA that made me subject to it.
I don’t believe in fraud or evasion. There are too many legitamate ways to lower taxes. It just takes a little bit of research and some creative thinking. It’s pretty easy to separate the IRA assets from IRA restrictions and still maintain control of them.

Okay, not to beat this thing to death, but let’s be clear about this… you can’t avoid UBIT reporting requirements, tax, etc., if you’re making money by buying real estate with leverage…

I hope people understand that… Most of the self-directed IRA real estate guys whose tax returns that I’ve seen don’t understand this.

You mention UBIT and you just get a blank stare…

You are 100% correct. Use leverage in the IRA and UBIT kicks in, but most people have never heard of it. The realty of most tax and AP strategies is that only good stuff is mentioned by the “experts”. They neglect all the details needed to get the full benefits.

Gurus wouldn’t sell RE programs if they said you need 20% and have to deal with tenants. It’s all about no money down and no hassles. The SD IRA people wouldn’t have clients if they mentioned all the nasty details.

Yeah, that’s my sense. :banghead

There doesn’t seem to be more than a dozen custodians for SD IRAs
I’m looking at using Pensco in San Fransisco. Check out their website and sign up for the webinars, that way you will be allowed to download the past webinars (mp3’s) and pdf of slides. Tom Anderson is the key person of this organization.

Another consideration for choice of custodian are their annual charges.

If there are other SD IRA custodians that offer free educational materials, that teach you the ins and outs of other investments, please do tell.