Self-Directed IRA? It's Easy If You Do It Smart

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If you’ve been self-directing your IRA (or thinking about it!), you may have heard how hard it is to work with self-directed custodians— but that’s only true of some self-directed custodians. Though some companies are known for overcharging while under-providing (or just being plain hard to get ahold of), we promise that’s not true for every self-directed company.

Don’t let a few bad apples chase you away from a great opportunity to invest. Don’t give up on self-directing your future. Not all custodians are the same, we all do things differently.

Self-directing your retirement doesn’t have to be hard work or time consuming. There are many ways you can make self-directing your IRA easy— just follow these simple recommendations:

 

Follow the Self-Directed IRA Rules

Self-directed IRAs are an investment vehicle that lets you to put retirement dollars in assets that you know and understand. You can use them to create wealth for your future faster (potentially much faster). But the IRS forbids using this account for personal benefit before retirement— if that’s your plan when setting up a self-directed IRA, then you’re breaking the rules (and that has risks).

One of the most common questions we get from investors after we tell them this is, how would the IRS know? I immediately say, perhaps a self-directed IRA is not for you. The risks are great and it’s really not worth it.

Many investors try to get creative and look for work-arounds for prohibited transactions. Don’t do it — it doesn’t work! Plus, when breaking the rules, you’re putting your entire IRA at risk of losing its tax-deferred or tax-free status. I can’t stress this enough— the consequences can be severe.

If in doubt, give us a call. We can help you understand if your strategy involves a prohibited transaction. We stick to the rules to help you save time, money, and headaches.

Do Your Part as an Investor. Be Proactive.

As a self-directed investor, some of the work is on you. This doesn’t have to be hard or tedious if you're prepared, do things timely, and get into the habit of communicating with your custodian regularly.

Be proactive not reactive. Ask. Send a quick email asking how you should prepare for whatever it is you want to do. This should be part of your due diligence and can speed up any self-directed investment. Whether this is your first time opening a new account, transferring money, making a purchase, or taking a distribution, ask what you need to do to make the process easy. If you do it correctly the first time, all future transactions will be much easier.

Emails and other correspondence from your custodian should not be ignored. Sometimes these contain time-sensitive information that impact your pending or current investments. We can tell you that if it wasn’t important, you wouldn’t be receiving it.

It’s a good idea for you to keep a calendar of when things are due— like payments to investment providers, payments to your custodian, and bills due for an investment. Remember, you need to direct your custodian to make certain payments— setting these up ahead of time can help get the payment to the payee on time.

 

Review Your Account Statement Regularly

Sometimes not knowing your balance and not keeping on top of your account activity can slow you down. If you aren’t prepared for your upcoming bill or investment, things can get delayed, potentially causing late fees or other negative consequences for your IRA.

For example, if you have a bill that’s due (say the property taxes on your rental) and you don’t have enough funds in your IRA, your custodian won’t pay your bill. If you can’t make a contribution to cover those costs, you’ll have to bring those funds in from either another retirement account or some other source, and that can take anywhere from a few days to a few weeks. IRAR doesn’t control this and can’t make the process any faster.

Maybe you were counting on income from an asset that is supposed to be sent directly to your custodian to cover your IRA’s expenses, but for some reason it never showed up. Now your account is short funds and you have a past due bill. Maybe you could have done something to prevent this if you’d noticed the missing payment when reviewing your statement.

Reviewing your statements and understanding your balance is not time consuming. It only takes a few minutes to login to your account to make sure you have enough to cover bills, avoid past due fees, and make sure everything in your account looks as it should.

 

Hire a Reliable and Knowledgeable Custodian

We always encourage investors to compare fees between custodians— but it’s even more important to compare service. If your provider can’t answer your questions, or (even worse) doesn’t respond promptly, or at all— yikes. That’s not good service, and that can impact your investments.

Pick up the phone, call a few companies, and ask some questions. If you already have a self-directed IRA, call your existing provider. See how long it takes to respond, how long it takes to find someone who can help, and how confident they sound in their answers. Some providers are better than others.

A custodian that is prompt and accurate is important for effective investing. Since your custodian must act as the middleman for you and your IRA (unless you have an IRA LLC).

As you can imagine, slow servicing times and delayed transactions can cost you and cause you to lose investment opportunities. Chose a custodian that is knowledgeable, has adequate servicing times, and is responsive for the best results. Make sure their team that can support your goals and has your best interests in mind.

 

In a Nutshell

There are many things you can do to self-direct your retirement the easy way. Just follow these simple guidelines and ask for resources for before and after a transaction. Make sure you’re following the IRS rules and reviewing your account regularly for accuracy. If you have any questions, we’re always here to help.

There’s always something that you can take away that will help to prepare you for an easier experience. If you want to run your strategy by one of our Certified IRA Services Professionals (CISPs) to make sure, sign up for a free consult— our experts are experienced in all aspects of self-direction, and they’ll be sure to answer your questions accurately.

 

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