Self-Directed IRAs
Self-Directed IRAs is a great retirement vehicle but they are not for everyone. A Self-Directed IRA is truly for the investor who wants to take a more active role in the investment of their retirement funds and enjoy true diversification as never before. But, Self-Directed IRA investing can be complicated, so it is important that you get informed before you get involved.
The Custodian:
A Custodian is defined as an organization responsible for safe-guarding your business or personal assets. IRA custodians act as the bank or broker for your retirement accounts. There are only a few IRA Custodians that specialize in managing real property inside you Self-Directed IRAs.
For example: You currently have an IRA with a $75,000 in it and you now want to move it into a Self-Directed IRA to give you more flexibility and growth potential. You will need to contact your current Plan Administrator or Brokerage House and notify them of that you’re moving your retirement funds to an IRA Custodian. This process can be tedious and frustrating because the Plan Administrator and Brokerage Houses often create unnecessary obstacles in the process. An experienced Custodian can walk you through the process in an expedited manner.
The Custodian and You:
The relationship between the Custodian and you can be compared to a parent/child relationship. The Custodian doesn’t necessarily give you immediate access to those funds so when you do find an investment opportunity you have to go back to the Custodian and ask for permission.
The Custodian will require you to fill out a request for them to make an investment on your behalf. Again, filling out investment forms can be both time consuming and tedious work. Most Custodians will likely charge a nominal fee for reviewing your request, and if approved, they will charge you for wiring the funds to the appropriate parties.
Custodian Fees:
Make sure when you select a Custodian you clearly understand their entire fee schedule. Most Custodians are both asset and transitionally focused when it comes to their fee schedule. They typically charge you anywhere from $250 to $500 for every $100,000 you have in your account EACH YEAR just to hold it with them.
In addition to the wire transfer fees and annual asset value fee, they may charge for: research fees; transfer fees; annual processing or management fees. The key is to identify a Custodian that doesn’t nickel and dime your IRA account. Also, make sure your Custodian is responsive. There is a tendency with many Custodians to move slow and cautious, but when it comes to investing, time can be either your best friend or your worst enemy.
Real Estate in Your Self-Directed IRA
Earning potential using real estate inside an IRA has caused many individuals and small business owners to rethink their current retirement strategies. David Nilssen, co-founder of Guidant Financial Group Inc, conveyed, “I can’t tell you how many people I talk to everyday who say they wish they had heard about this strategy three or four years ago. People can see the power of real estate. It is more real than stocks or mutual funds. You can touch it and see it.” Nilssen’s company, Guidant Financial Group Inc, specializes in IRA facilitation. Their purpose is to help average people get started in non-traditional IRA investments like real estate. “It is rewarding to help people whose retirement savings have been devastated by the bear market recover their savings through non-traditional investments I have personally lost a great deal of money in the stock market, so I can empathize with the powerlessness one has over Wall Street.”
Using leverage inside your IRA can be very complicated. Using a qualified Custodian, who can help you through the process of switching into a Self-directed IRA and provide a network of professionals familiar with IRA investing, is very important. Nilssen specified, “If you decide to invest with a Self-Directed IRA, don’t try to do it yourself. Use a professional to handle the process and avoid the severe penalties of doing something incorrectly.”
