10 Self Directed IRA Frequently Asked Questions
There may be many questions you have in mind when it comes to having a self directed IRA. When it comes to the decisions you are preparing to make for how to diversify your investments in a self directed IRA, you need accurate answers, not second guesses!
1. What is the difference between a regular IRA and a self directed IRA?
2. What should I expect to pay in self directed IRA fees?
3. What types of retirement accounts can I place in my self directed IRA accounts?
4. What is the difference between a self directed IRA and a self directed IRA LLC?
5. Is there a downside to investing with a self directed IRA? If so, what?
6. Is Real Estate investing an option for my self directed IRA?
7. How does the IRS feel about self directed IRA investments in real estate, limited partnerships, limited liability companies, joint ventures, and C Corporations?
8. Can my self directed IRA purchase real estate already owned by me or my spouse?
9. Are there any advantages to using a self directed IRA LLC for investing in real estate rather than my self directed IRA?
10. Who are qualified people for transacting business with your Self Directed IRA?
1. Q. What is the difference between a regular IRA and a self directed IRA?
A. A self directed IRA and a regular IRA are similar in many ways. The major difference is that with a self directed IRA, you are allowed to make the investment choices versus a custodian who is in charge of your IRA. Often the custodian of an IRA may say that you can invest as you wish but impose restrictions when you attempt to make investments that will not benefit the custodian. With a self directed IRA, the only restrictions are the ones you impose on yourself, except for prohibited transactions. “See question 9″
2. Q. What should I expect to pay in self directed IRA fees?
A. Even though you have a self directed IRA, having an administrator for your IRA is a very wise investment. You can expect to pay reasonable fees for a highly qualified administrator who can keep your IRA investments in order and make sure that you are in compliance with any applicable government regulations. Click Here For Pensco Fee Schedule
3. Q. What types of retirement accounts can I place in my self directed IRA accounts?
A. There are many different types of retirement accounts that you can place in your self directed IRA accounts. These accounts include 401(k)s, educational IRAs, qualifiable annuities, Keoghs, traditional IRAs, 403(b)s, money purchase plans and eligible government deferred compensation plans. If you are uncertain, your self directed IRA administrator can help with additional questions you may have about which other types of retirement accounts you can place in your self directed IRA accounts.
4. Q. What is the difference between a self directed IRA and a self directed IRA LLC?
A. A self directed IRA and self directed LLC are both self directed accounts. The difference is that with a self directed IRA LLC, managing the account and balancing the checkbook as well as writing checks from the IRA are all your responsibility.
5. Q. Is there a downside to investing with a self directed IRA? If so, what?
A. With so many choices available when it comes to investing in a self directed IRA, one might imagine that there isn’t a downside. Quite the opposite is true. For some people, a definite downside is the fact that a self directed IRA puts you in charge. Many people find it frightening to be in charge of their own investments and don’t want the responsibility that goes along with managing and maintaining a self directed IRA. For these people, a self directed IRA is not right for them.
6. Q. Is Real Estate investing an option for my self directed IRA?
A. Positively! Real estate is one of the investment options that can truly add value to your investments. The arena of real estate is expansive when it comes to choices to add to your self directed IRA. Some of the more popular choices are single family homes, duplex residential rentals, commercial properties, mortgage loans, mortgages, condominiums, raw land in both domestic and foreign countries, manufactured homes, apartment buildings and more.
7. Q. How does the IRS feel about self directed IRA investments in real estate, limited partnerships, limited liability companies, joint ventures, and C Corporations?
A. The IRS makes a clear statement on their website about real estate investing with a self directed or regular IRA which says, “…many IRA trustees do not allow IRA owners to invest IRA funds in real estate. IRA law does not prohibit investing in real estate but trustees are not required to offer real estate as an option.”
8. Q. Can my self directed IRA purchase real estate already owned by me or my spouse?
A. The simple answer is no. The not so simple details are associated with IRS Code Section 4975, which indicates that you cannot purchase property from yourself or other disqualified individuals. Disqualified individuals includes yourself, your spouse, your lineal descendants and their spouses, your investment manager, and any corporate or other such partnership where you have 50% or more of ownership interest.
9. Q. What are prohibited transactions for the use of IRA Self Directed funds?
A. You may not invest in any property that is a collectible according to the IRS definition. This list includes precious metals or gems, antiques or rugs, stamps or coins, works of art or alcoholic beverages.
10. Q. Who are qualified people for transacting business with your Self Directed IRA?
A. Any unrelated person as well as brothers and sisters, spouses brothers and sisters, your spouses lineal descendants, aunts, uncles, and cousins.
As you can see, there are many questions that can be answered relatively simply and some questions that are not quite as easy to answer. The questions here are just a sampling of some of the most frequently asked questions by individuals who may be getting ready to start a self directed IRA or have already invested in a traditional IRA and wish to make the transition to a self directed IRA.
You may still have lots of questions that you need answers to. There is no reason to stop searching for answers now that you’ve found a few. You’re making plans for your retirement fund and you deserve to have all the answers you need before you make any investments. The best investments for your IRA are the self directed ones you make.