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How to Start a Self-directed IRA

According to Wikipedia, a self-directed IRA (Individual Retirement Arrangement) is “a type of IRA that allows the account owner to direct the account trustee to make a broader range of investments than other types of IRAs.” A self directed IRA is a smart way to save for retirement. It can be funded in many ways, and it comes with many long- and short-term tax benefits. It’s a far better alternative to a saving account that will be subjected to taxes. This makes it the best option for people saving for retirement.

In addition, a self-directed IRA is a safe way for entrepreneurs to make non-traditional investments in a tax-advantaged retirement account. With your self directed IRA, you can invest in stocks, CDs, bonds, mutual funds, and other traditional assets. In addition, you will also be able to invest in real estate, franchises, tax liens, private equity, and other investments that are not allowed in other IRAs, such as 401k plans, Roth IRAs, and traditional IRAs.

Today, more and more people are turning towards self directed IRA. Due to their desire to build more substantial return on investments, many working professionals are using retirement as a safer blanket of support. If you are saving for retirement and would like to have a wide range of investment options available to you, then you should consider starting your own self directed IRA. Here are the steps you need to follow.

How to Set up a Self-directed IRA LLC with Checkbook Control

1. Register your business

You can start by visiting the office of the Secretary of State in your state to register your business as a Limited Liability Company. You will be required to pay certain fees and follow other instructions. You can check the website of the Secretary of State in your state for a complete list of these instructions as well the forms, fees, and other requirements for registering your business.

2. Hire an attorney

The process of starting a self directed IRA isn’t one you can go alone. You need to hire a seasoned lawyer to prepare an operating agreement. After this agreement has been prepared, be sure to check whether it meets the requirements determined for a self directed IRA by the Secretary of State.

Though you can set up an operating agreement without the help of an attorney, the agreement is a key component in the process and must be well prepared. So, even if you won’t hire an attorney, you must be 100 percent certain that it meets all specified regulations and requirements.

3. Open your self direct IRA account

Your next step is to establish a self directed IRA account with a self directed IRA custodian. An IRA custodian is a company that helps people hold their IRA funds. You can find many such companies by simply doing a web search for “self directed IRA.” You will need to specify that you are setting up a self directed IRA, as there are other types of IRAs. Before choosing an IRA custodian, verify that the custodian grants 100 percent of self directed IRA investments by individuals and LLC companies.

4. Fund your self directed IRA

Once your self directed IRA is completely set up, funding it comes next. You can fund it either with cash or by rolling over your assets from an existing IRA or 401k plan. This transfer of assets will remain ‘untaxable’ unless you move from a pre-tax account (such as a traditional IRA) to a post tax account (such as a Roth IRA). Similarly, you may transfer funds from a previously held account or one that is currently funded by your employer.

5. Invest in your self directed IRA

Start working with your self directed IRA custodian to begin the investment process. Some custodians will recommend a self directed IRA LLC (this is where your IRA invests in an LLC that you direct). This gives you greater flexibility and control over your transaction and reduces the fees payable. Work with your IRA custodian to decide on the terms of the investment before making it. Also, always talk to your custodian and a tax advisor for advice and implications before making any decision.

Additional tips
  • Purchase all your investments in the name of the LLC. Don’t use personal accounts or draw investment revenue in your name. Protect yourself by working and investing solely in the name of the LLC.
  • Look for long-term investments, and find an appropriate investment board that will allow for strong and continued investment.
  • If you are planning to invest in traditional assets (such as bonds, mutual funds, stocks, and CDs), you are better off with a mainstream IRA because self directed IRA fees for such investments will be higher than those charged for mainstream IRAs.