How To Set Up a Self-Directed IRA

What is a Self Directed IRA?

Good question!

I was looking for ways to get my IRA money out of Wall Street and there didn’t seem to be many options.  Bank and Credit Union CD’s, Treasury Notes and Bonds purchased directly from the Treasury were the only options that I found.

I asked several Financial Advisors and they didn’t know about Self-Directed IRAs.  I leaned that fee-based Financial Advisors must clear through a custodian, i.e. Charles Schwab, Ameritrade, etc. and their custodian only allows investments in publicly traded mutual funds, stocks and bonds. Other Financial Advisors are compensated through fees added to the investment products their clients purchase.

Finally I met a Financial Advisor who had set up her own Self-Directed IRA.  She walked me through the process, which was expensive and tedious, and recommended a book that promoted buying and flipping real estate in an IRA. I was not interested in flipping real estate.

Lending Club, a peer-to-peer loan program, offered an IRA option that required me to open a self-directed IRA with a custodian located in Texas.  I filled out the application, opened a self-directed IRA and transferred funds. The process took about 8 weeks. By that time, I had researched Lending Club thoroughly and decided against investing in Lending Club product.

I learned a new term – “Checkbook IRA.” I called my IRA custodian and asked if I had or could have a “Checkbook IRA.”  My custodian did not allow “Checkbook IRAs.”  My custodian had to approve and track every investment that I made.   I still could not manage my own money.  I began the search for a custodian that would allow me to have a “Checkbook IRA.”

A “Checkbook IRA” is a Self-Directed IRA with only one investment – Your Checkbook LLC.  Setting up a “Checkbook IRA” is a two-step process.

1.     First – Select a Trust Company that can produce the legal documents to set up Your Checkbook LLC.

I tried to find a local attorney to draft the LLC documents.  I was unable to find one after several months of searching. I finally selected a Trust company from a Goggle search. Ironically, the LLC documents, which cost $1,675, are printed on the letterhead of a local law firm.

2.     Second – Select a custodian and set up an account.  The function of the custodian is to accept transfers from other IRA custodians, make transfers to and accept transfers Your Checkbook LLC, calculate and fund required minimum

I wanted a local custodian as their job is to report annually to the IRS.