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The most frequently asked questions about self-directed IRAs. Get answers and knowledge you can trust from our team of experts.

GENERAL QUESTIONS

A self directed IRA administrator is a company that offers record keeping for Individual Retirement Arrangements (IRAs). The Internal Revenue Service (IRS) does not allow an individual to do their own record keeping. It must be done by a third party who keeps track of your Individual Retirement Account and completes all of the required reporting to the IRS in order to keep your money in a tax-deferred status.  These administrators work with a custodian. Both are regulated under the custodian's state division of banking. 

All undirected cash in each IRA held with IRAR is placed in FDIC insured banks. IRAR utilizes multiple depository banks. As a result, all un-directed cash is insured, many times, over the $250,000 FDIC insurance limit.

The (FDIC) is an independent agency of the United States government created to protect depositors in the event a bank fails and cannot refund their money. The FDIC insures deposits only. It does not insure securities, mutual funds, or other alternative investments. If a bank fails, the FDIC will refund up to $250,000 in deposits per depositor, per insured bank, for each account ownership category.

In these troubling times, safety and security are paramount. Especially when it comes to Americans' retirement savings. An IRAR provides peace of mind for you knowing that your undirected cash funds are secure.

You can learn more about FDIC coverage and limits at www.fdic.gov

The best way to combine IRAs is through a transfer and not a rollover. 

A transfer is a non-reportable, non-taxable movement of assets between the same IRAs (e.g., Traditional IRA to Traditional IRA, Roth IRA to Roth IRA). An IRA holder may conduct this transaction as many times as they wish.

Rollovers, on the other hand, are distributions that are paid to the IRA holder. It’s up to the IRA holder to re-deposit/rollover the proceeds received within a 60-day period to an IRA of the same type. It is reportable since there is no guarantee to the custodian that the funds are being distributed and re-deposited within the 60 day period. The IRA holder is also limited to one rollover transaction within a 12 month period for all IRAs the holder owns. To rollover, two IRAs will prohibit the second IRA to be rolled over.

 

Yes, you can initiate transfers between IRAs as many times in one calendar year as you wish. These are called trustee-to-trustee transfers. The IRS does not place any limits on the number of times you can transfer your IRA.  However, rollovers are only allowed once per year.

It comes as a surprise to many people that there is no list of approved investments for retirement plans. However, the IRS does have a list of what the law does not allow as an investment. Self-directed IRAs cannot invest in:

  1. Collectibles: Art, antiques, gems, coins, or alcoholic beverage, and certain precious metals
  2. Life insurance: See IRC Section 408(a)(3)
  3. S-Corporations: Trusts that qualify as an IRA are not eligible to be shareholders of an S-Corporation (see Revenue Ruling 92-73)

For more information on investments not allowed in retirement plans visit the IRS website. Give us a call if you have an investment in mind, or set up a free consultation at your convenience. 

Disqualified Persons are people or entities that cannot do any direct or indirect transactions with the IRA. The IRA cannot do business with:

  • You, the IRA owner
  • Beneficiaries of your IRA
  • Your family members:
    • Spouse
    • Parents
    • Grandparents and great-grandparents
    • Children and their spouses
    • Grandchildren, great-grandchildren, and their spouses
  • Service providers of the IRA including those that give investment advice concerning the assets for which he/she receives direct or indirect compensation
  • An entity—it could be a corporation, partnership, limited liability company, trust or estate—owned 50% or more (directly or indirectly) by a DP
  • An officer, director (or an individual having powers or responsibilities similar to those of officers or directors), a 10% or more shareholder, or highly compensated employee (earning 10% or more of the yearly wages of an employer) of a person described above.

Medallion signature guarantees are required when securities are being transferred. If your account doesn't have securities you won't need a medallion signature guarantee.

DISTRIBUTIONS

You can take the whole amount in one lump sum OR you can take out several smaller amounts throughout the year totaling the full requirement, as long as it is before the deadline. At the end of the year you will get a tax form showing the full amount of all of your distributions to include with your taxes for the previous year.

There are a few ways you can handle this. With a RMD, you can take the distribution from any IRA you have— it doesn’t have to be from a specific IRA. If you have another retirement account that does not hold real estate, you can take your RMD from that account. You also can take a partial distribution (in-kind distribution) for a portion of the real estate, though you will still owe taxes on the amount distributed. You can also liquidate this property to satisfy the distribution requirement.

Yes, you can slowly distribute a piece of real estate, or any other asset, over multiple years.  This is something that you should take into account as part of your investment strategy.   To start this process you fill out a distribution form. You will need to reregister and retitle the deed each year at the correct percentage breakdown (i.e. IRAR Trust Co FBO John Smith 90% and John Smith 10%) until the entire property is distributed.

It is important to remember that, unless you have a Roth account, you will be responsible for tax on the amount or value distributed. You are responsible for this tax payment even if you distributed only physical property, so make sure you can make that tax payment. This is not the only way to do an in-kind distribution— please feel free to reach out to an IRA Resources representative if you have questions, we’d be happy to help.

No, it doesn’t. IRS rules forbid putting your RMD into another tax-advantaged retirement account. You can convert any remaining funds or assets in your Traditional to a Roth. So, for example, if you wanted to convert $10,000 and had a RMD of $2,000 for the year, you’d be required to distribute that $2,000. The remaining $8,000 would be converted to your Roth account.

When converting, if you are under 59 ½, we suggest not having taxes withheld. Any amount not converted to your Roth is considered a withdrawal by the IRS. A withdrawal for someone under 59 ½ may be subject to a 10% early distribution penalty, on top of taxes. This is why we recommend not withholding, to prevent double-taxing your distribution.

At 70 ½ you must begin taking Required Minimum Distribution (RMD) payments each tax year, unless you have a Roth IRA. The exact amount depends on many individual factors. You can calculate your estimated RMD here.  You can liquidate assets to take a cash distribution, or you can take an in-kind distribution. 

Yes, you can take distributions early. But, on top of traditional taxes, if you take a distribution before you are 59 ½ there will be a 10% penalty. There are a few exceptions, like a qualified first-time home purchase, but this is decided on an individual basis.

Yes. Required Minimum Distributions (RMD) apply to Traditional, SEP and SIMPLE IRAs, whether they hold alternative assets (i.e. real estate) or not. Roth IRAs do not require RMDs until the death of the owner.

If you hold real estate in a self-directed IRA, you can take the RMD from another IRA if you have the funds available, or you can take the RMD in-kind from the real estate. Taking a distribution in-kind (from the real estate) means you would need to distribute the amount required to satisfy the RMD by re-registering the proportionate percentage of ownership in your name. Talk to a tax professional if this is something you are considering.

FEES

For a non-real estate asset, the initial asset purchase fee is $50. For a real estate purchase, there is a $175 purchase fee. With both types of purchase, there are additional fees depending on how the funds are sent to fund the investment. 

Delivery Method Fees:

Check

$7.00

Cashier’s Check

$30.00

Overnight Delivery

$30.00

Wire Transfer

$30.00

ACH Transfer

No Fee

For example: 

  • Non-Real Estate Asset Purchase ($50) + Wire Transfer ($30) = $80
  • Real Estate Asset Purchase ($175) + Wire Transfer ($30) + Overnight Delivery of Documents ($30) = $235

If you’d like a more detailed breakdown of our fees, you can find them here, along with other information about our services.

There is a minimum yearly administrative fee of $199 per asset.  It is divided in two payments of $99.50, billed semi-annually. Any additional fees are determined based on the frequency and type of transaction processed. For a more detailed breakdown, please see our fees here.

The types of fees vary depending on the assets held in the account and the investment strategy of the account holder.

Every IRAR client will pay a minimum yearly administrative fee, $199 per year for one asset, with an additional $75 for each additional asset. There are also fees for payments sent from IRAR, depending on how the funds are sent to the investment, listed below. Some clients bulk schedule payments to save on these types of fees, which we encourage (if the payee allows). If you’d like a more detailed look at our fees, you can see them here.

IRAR Processing Fees 

Check

$7.00

Cashier’s Check

$30.00

Overnight Delivery

$30.00

Wire Transfer

$30.00

ACH Transfer

No Fee

 

Private Placements have a $50 purchase or sale fee, along with a fee depending on how the funds are sent.

Real Estate purchases and sales have a $175 fee. There are other fees associated with the purchase process, like with purchasing any property, but these are not IRAR fees and are variable depending on the real estate.

Additionally, real estate often has mortgage payments, HOA fees, utilities and other fees related to the property. There is no fee for processing these payments, but there are fees depending on the payment and delivery method, listed above. These fees are often consolidated by using a property manager (who pays the individual bills, with a flat fee deducted from the income of the asset before the funds are sent to IRAR for deposit), or bulk scheduling of payments in advance.

The minimum yearly account administrative fees apply to all asset types, and we do not have a separate fee for cash. If your account holds cash and one asset, you will be billed $99.50 for one asset semi-annually, a total of $199.00 per year.  If you hold cash only, with no assets, you will be billed the minimum yearly account administrative fee, which is the same as if you held one asset.   

For example:

Cash Only = $199

Cash + 1 Asset (1 House) = $199

Cash + 2 Assets (2 Houses) = $398

We will calculate your RMD based on your IRAR account value (remember, your RMD is based on all your retirement accounts), at no cost. There is a fee depending on how we send the payment.  Checks are $7 and wires are $30.  There is no fee for delivery of payment via ACH.

If you’d like to calculate your RMD yourself, the IRS has more information here. If you have any additional questions, please reach out to an IRAR representative— we'd be happy to help answer any questions you may have.

Our very competitive fee schedule makes us an obvious choice for your self-directed IRA.  Our Minimum Recordkeeping Fee (fee includes your cash account and one asset) is $199 annually.  However, the annual fee is billed semi-annually.  If your IRA holds one asset you would pay $99.50 semi-annually.

If you hold more than one asset, the additional fee per asset is $75.  For example, an account with two assets would pay $137.00 semi-annually.  Please refer to our Fee Disclosure for details.

REAL ESTATE - REAL PROPERTY

Yes, you can slowly distribute a piece of real estate, or any other asset, over multiple years.  This is something that you should take into account as part of your investment strategy.   To start this process, you fill out a distribution form. You will need to reregister and retitle the deed each year at the correct percentage breakdown (i.e. IRAR Trust Co FBO John Smith 90% and John Smith 10%) until the entire property is distributed.

It is important to remember that, unless you have a Roth account, you will be responsible for tax on the amount or value distributed. You are responsible for this tax payment even if you distributed only physical property, so make sure you can make that tax payment. This is not the only way to do an in-kind distribution— please feel free to reach out to an IRAR representative if you have questions, we’d be happy to help.

Yes. Required Minimum Distributions (RMDs) apply to Traditional, SEP and SIMPLE IRAs, whether they hold alternative assets (i.e. real estate) or not. Roth IRAs do not require RMDs until the death of the owner.

If you hold real estate in a self-directed IRA, you can take the RMD from another IRA if you have the funds available, or you can take the RMD in-kind from the real estate. Taking a distribution in-kind (from the real estate) means you would need to distribute the amount required to satisfy the RMD by re-registering the proportionate percentage of ownership in your name. Talk to a tax professional if this is something you are considering.

Contrary to what many brokers will tell you, it is possible to hold real estate directly an IRA. However, it must be a self-directed IRA and the IRA owner cannot benefit directly from the property.   For example, you can't:

  1. Borrow money from your IRA 
  2. Sell property to your IRA
  3. Use your IRA as security for a loan
  4. Buy property for personal use (present or future) with IRA funds
  5. Use the property yourself or allow disqualified partiesto use or live there

These are just some of the most common prohibited transactions that we come across.

No, this is a prohibited transaction. Your IRA cannot transfer property that you currently own. See IRS Code 4975 for information on prohibited transactions, disqualified persons, and self-dealing.  Here is more information on this subject. click here

LLC - PRIVATE PLACEMENTS - CHECKBOOK CONTROL

Some advantages of using an LLC in your self-directed IRA include:

  • Control: You have a checkbook that is linked to a checking account that is set up in the name of your LLC under its own tax ID number. When you identify an investment that you want to purchase, you can just write a check. You don’t have to fill out paperwork, get approval from the administrator, or wait for someone else to fund the investment— you can take care of it yourself. This can be particularly helpful in investments that have a limited time period or are being auctioned.
  • Cost: Checkbook control can help you avoid transaction and check-writing fees that are typically associated with a selfdirected IRA. If there are multiple investments in the LLC, your administrator only charges you for one asset, the LLC.

When referring to investing in a company, you are most likely talking about a Private Placement. Private placement is an umbrella term for investments that are not registered with the Securities and Exchange Commission.

Here is a 5 step process on how to participate in private placements with a self-directed IRA:

  1. Open an account with IRAR
  2. Fund the retirement account with a contribution, transfer, or a rollover from another IRA or employer plan (e.g., 401(k), 403(b), SEP, SIMPLE)
  3. Conduct due diligence on the proposed investment
  4. Provide investment documentation to IRAR
  5. Fill out a Buy Direction Letter for IRAR to purchase the investment on behalf of your account

Some important things to remember:

Private placements are offered without some of the protections, such as disclosure requirements, that apply to investments that are registered with the SEC. This makes it even more important that you pay attention to the details and to talk with a qualified legal or investment adviser.

  • Ask if the investment puts limits on how long investors have to wait before they can sell or withdraw their funds. If you are close to retirement or to age 70½, make sure that this will not interfere with taking your required minimum distributions to avoid penalties.
  • Find out if earnings from the entity are taxable to the IRA, even if they are not paid out.
  • Find out if your state considers LLCs to be securities; in this case the entity will have to meet the standards of securities offerings.

Yes, it’s legal. The Internal Revenue Code doesn’t list the types of assets that you can invest in; it only states what you cannot invest in. The only two prohibited assets are life insurance and collectibles. Because an LLC is not a prohibited asset, it is a legal investment for your self-directed IRA.

Want to learn more? Check out our LLC and Checkbook IRA guide by clicking this link, IRA LLC