Setting up your Self Directed IRA
When working with a third party to set up your SDIRA, you should be aware of the difference between the types of companies you can use to facilitate the administration of your SDIRA. Why do these differences matter? With no oversight or audit to worry about, administrators and facilitators can afford to be (and often are) much more liberal in terms of accepting assets. This leaves investors open to a lot of potential issues – for example, unknowingly engaging in a prohibited transaction that’s later caught by the IRS – with expensive repercussions. According to the Watson CPA Group, IRA prohibited transactions are where most investors make their mistakes. And since many of these companies align themselves with asset sponsors, their priority is to sell you something that they’ll make money on, rather than help facilitate the investment strategy that’s right for you.
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Here is a basic breakdown of the differences:
IRA custodians are regulated entities – things like trust companies, banks and broker dealers – that are authorized by the IRS to act as IRA custodians. Since custodians are directly approved by the IRS, they are the only entity in this group that’s allowed to physically hold assets. IRA custodians typically offer the most comprehensive IRA services in terms of helping clients set up accounts, make investments and maintain paperwork related to the investments (which, when it comes to alternative assets, is no small feat). And more importantly, these custodians are subject to regulatory oversight at the federal and state level, so there’s a level of compliance that’s not there with the other entities.
IRA administrators and facilitators, on the other hand, work under a different set of IRA rules. They are not able to custody assets and are not approved or overseen by the IRS or banking regulators. So what exactly do they do? Both essentially act as intermediaries between the investor and a partner custodian. Administrators, as the name suggests, process paperwork and provide other administrative functions, while facilitators most often specialize in helping investors set up single member LLCs and C Corporation IRAs.
Here is an excellent overview on how “checkbook control” IRAs and Solo 401K’s work.
To learn more about investing in real estate through a Self Directed IRA, contact one of these companies:
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