Investing through a truly self-directed IRA account can allow you numerous advantages – starting with a tremendous amount of diversity with regard to the assets you can buy and sell, which in turn, can ultimately provide you with a nice return.
While it may seem that getting a self-directed IRA account open and funded is somewhat overwhelming, the reality is that if you just follow the steps that are provided in this guide, you can have your account up and running quickly, while also making sure that you stay on track with the related IRS rules and regulations.
Any successful endeavor can be made easier by having a system to follow. Setting up and managing a self-directed IRA account is no different. Below is a checklist that can help you in proceeding through the steps that are required for initially getting your account open and funded, as well as with other actions that are needed both as you get started, as well as for successfully progressing with your self-directed IRA investing.
It is important to keep in mind that there are experts available in the market place who can assist you throughout the process of setting up, funding, and investing in your self-directed IRA account. So, if you have any additional questions, be sure to contact these individuals or companies in order to ensure you are heading in the right direction.
- Become familiar with the IRS rules that are in place for self-directed IRA account ownership and investing.
- Research several custodians, and choose one to work with for opening and investing in your self-directed IRA account. If you decide to specialize in real estate investing (or any other specific asset) in your self-directed account, it can be helpful if you work with a custodian that also has expertise in that particular area.
- Choose which type of self-directed IRA account you will open – traditional or Roth. With a traditional IRA, you may be able to deduct some or all of your contributions, and your funds inside of the account will grow tax-deferred. You will pay tax on your traditional IRA withdrawals. With a Roth IRA, your contributions will go into the account after-tax, however, the funds in the account can grow tax-free, and your withdrawals in the future will also be tax-free.
- Select the members of your self-directed IRA advisory team. In addition to a custodian, you will also want to have on board with you an accountant or CPA, an attorney, and, if you are planning to invest in property, a real estate agent or broker. It is important to make sure that each of your proposed team members has experience in, and knowledge of, self-directed IRA investing.
- Open your self-directed IRA account. Typically, this will require filling out and submitting the appropriate paperwork to your IRA custodian.
- Fund your new self-directed IRA account. There are several ways that you can go about this, including making direct cash deposits (up to the maximum annual limit). You can also transfer funds from an existing IRA account, and / or roll money over from a previous employer-sponsored retirement account, such as a 401(k) plan. If you are transferring or rolling money over into your new account, there is no maximum dollar limit that can be brought into your new self-directed account.
- If you are going with the IRA LLC concept, complete the necessary paperwork to form the LLC.
- With an IRA LLC, you will also need to open a checking account in
the name of your IRA account. This will give you “checkbook control”, which can allow you to act more quickly on investments that you want to purchase for your IRA account.
- If you plan to invest in real estate, begin to research potential properties – and when you have found viable options, move forward with making an offer on the property.
- As you make investments through your self-directed IRA account, be sure to keep in mind what constitutes a prohibited transaction, as well as who (or what type of entity) is considered to be a disqualified person.
- Once you own self-directed IRA assets in your account, make sure that all funds coming in from that investment (such as rental income from a tenant) flow back into the account. Likewise, any expenses that are related to these investments (such as property maintenance) must come from the IRA account as well.
- Be sure to stay up-to-date on self-directed IRA rules over time. A good resource for doing so is the website of the Internal Revenue Service, which can be found at www.IRA.gov.
In addition to the diversification and tax-advantages that self-directed IRA account investing can provide, going this route can also put you in control of the assets you invest in – and ultimately in your future financial freedom.
Opening a self-directed IRA account may sound overwhelming at first. However, by following a step-by-stem system, the process can be done much more quickly and easily. It can also help you to ensure that you are headed in the right direction as far as various rules and regulations are concerned.
List some of the important points with regard to staying within the rules of self-directed IRA investing.
- Not investing in prohibited transactions
- Not including disqualified persons in your IRA transactions
- Not depositing more than the annual maximum amount that is allowed in an IRA
- Putting a self-directed IRA advisory team in place – which includes an accountant / CPA and an attorney
- Ensuring that all money that is related to your self-directed IRA investments flows directly in and out of the IRA account
- Regularly reviewing the information with regard to self-directed IRA accounts that can be found on the IRS website