A Self-directed IRA, or SDIRA for short, allows you to save for your retirement when your employer does not offer a retirement plan. As the name implies, a self-directed IRA allows the IRA owner some control over their investment (instead of the IRA Custodian). As with all investments, the owner also bears all the risks.
Three kinds of Self-Directed IRA accounts
There are three kinds of self-directed IRA accounts on the market. In the tax code an IRA is an IRA, there is no separate IRA called a self-directed IRA. Instead, both Traditional and ROTH IRAs can be self-managed. The three types of SD-IRA accounts differ in the degree they allow you to manage your own retirement account.
Self Directed IRA – Option 1
Some brokerage firms offer an account they call a SDIRA. These accounts give you more control over the investment choices than is typical in a retirement account. However, you will find that all of the investment choices are investments offered by that firm. This type of account will not allow you to invest in real estate or other types of investments outside what that account offers
Self Directed IRA – Option 2
A second type of Self-directed IRA is an account where the IRA account takes title to all assets. For example, if real estate is purchased in this type of SDIRA the IRA Custodian issues funds for the purchase and title is issued to the IRA. These accounts typically do not allow private placement investments.
The upside of this kind of IRA is that, by the design of the account, prohibited transactions and taxable events are practically eliminated. These accounts are best for someone who does not have the time or expertise to be in charge of their own funds. Investors rarely need an attorney involved when they create this kind of IRA account, as the Custodians handle everything.
Self Directed IRA LLC – Option 3
The third type of Self-Directed IRA is the least common. Some custodians allow clients to invest their retirement funds into an LLC that the client manages. While the most flexible of the three types, the SDIRAs place clients in the position of being able to trigger prohibited transactions or taxable events for the IRA. This actually places the Custodian at risk of filing false returns that are still their responsibility. These Custodians typically require that the client come to them through an SDIRA promoter (dozens out there) or through an accepted fiduciary.
I can help you create either option 2 or 3. Get started today by calling 206-550-9777 or reserve a no cost 15 minute consult.
Self-Directed IRA Resources & Links
All information on this website, including any links and documents linked to below, is given for legal education and promotion of legal services only. It may not work for your specific situation. It is not a substitute for legal advice. IF you are looking for a law firm experienced in self-directed IRA formation and maintenance, give us a call.
Frank Selden Law Resources
IRS Resources
- Pub 5490-A Contributions to IRAs
- Pub 5490-B Distributions from IRAs
- Pub 598 UBTI and UDFI
- IRS memo excerpt on Adequate Consideration
- Revenue Ruling 59-60 (defines FMV)
- Form 5498 IRA Contribution Info
Other Resources
- SEC Investor Alert: IRAs *
- DOL Advisory Opinion 2006-1A * good discussion of who is a disqualifed person
- DOL Advisory 2000-10A * family interests investing in entities together with their self-directed IRAs
SDIRA Cases
- Hoplon Financial (2018) - misued funds raised from mainly SDIRA investors
- Zamoras (2017) - fraudulent promissory note scheme targeting SDIRA investors
- Daley v Mostoller (2013) * does a PT occur if someone signs an agreement but no extension of credit is created
- Powell v. U.S. (2016)
