Investment Diversification: How to Create a Self Directed IRA (SDIRA) to Fund Permanent Wealth

SDIRA: Self-directed IRA

What I’m about to reveal could have a dramatic effect on your financial future.

It is one of the great secrets of the wealthy and affluent, but it’s a strategy absolutely everyone can use.

Since the 1970s, it’s been perfectly legal to move your IRA out of the standard brokerage IRA model and take complete control over how your IRA is invested.  It’s just that not everyone knows about it.

The brokerage companies don’t want you to know either because you would likely leave them.  If I had known about this earlier, I know I would have.

Imagine not having to rely on paltry volatile returns from the stock market and instead investing in real assets and real businesses that you can see and touch and control.

This is what Self Directed IRAs (SDIRAs) allow you to do.  Here’s how they work…

General Rules:

  1. You can invest in generally anything as long as you don’t own or are materially related to the opportunity/business you’re investing in.  The rules can get complex here but your SDIRA Custodian can help you.
  2. All proceeds (cash flow, capital gains, business income, etc.) flows back to the IRA.
  3. All taxes are deferred, except in a few specific cases of unrelated business income

You can even use a self-directed IRA to invest in Promissory Notes, Gold, Stamps, New or Established Businesses, Real Estate, or virtually any other investment you wish.

Here’s a quick step by step overview of the process

  1. Select an IRA Custodian. This is the company that administers the IRA, holds the assets, and invests on your behalf (with your 100% control).
    1. Two great options are Provident IRA and Equity Trust.
      1. There are many more out there, but the three above have been rock solid on service and their fees are reasonable.  If you have specialty needs like investing in Gold Krugerrands or Wine or Art, there are SDIRA custodians that help specialize in these assets too.
    2. Note: we get a lot of questions about the feasibility of check-book SDIRAs, which allow you to manage your allocations differently than a pure SDIRA.  There are some pros and cons that we’ll cover in a future article.
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  3. Complete the SDIRA Custodian’s Application.  This document will outline the scope of services and responsibilities of you, the custodian, and the investment sponsor throughout the process.  It will also outline the fees for startup, distribution, and management.
    1. Keep in mind, that SDIRAs have a slightly higher fee structure than regular IRAs.  However what you gain in control and real diversification more than makes up for it.
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  5. Perform Due Diligence and Select Your Investment.   It can take anywhere from 7 to 10 business days to setup a self-directed IRA.  So, it’s not completely required that you have the SDIRA setup first, but it is helpful.  That said more than a few of our investors didn’t setup their SDIRA until after they had decided to invest and performed their due diligence with us.
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  7. Notify the SDIRA Custodian of your intent to invest and complete the Buy Direction Letter.  Each SDIRA company is a little bit different on their process to fund new investments but requires a few things:
    1. First you review and complete the documentation for the investment you’re working on.
    2. This will need to be sent to the project sponsor and your SDIRA.
    3. Then you will complete a Buy Direction Letter (per directions from the SDIRA Custodian).
      1. The Buy Direction Letter is the document that gives the IRA the right to invest on your behalf in the specific investment that you direct.
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  9. Funding and Investment Close.  With a completed buy direction letter and all documentation on file with the SDIRA, funds are transferred from the IRA to the Investment.
    1. You may not be notified of the exact funds movement from the SDIRA immediately.  So, check with the project sponsor to ensure that funds transferred correctly.
    2. Generally investments are funded via wire or certified check from the SDIRA Company.
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  11. Management and Reporting.  Once the investment has started, the project sponsor (i.e., 37th Parallel Properties) is required to report to the SDIRA on an annual basis with regards to capital value and cash distributions of the investment.  With 37th Parallel this is done via the Schedule K-1, even though this document isn’t required for your taxes.  All proceeds from the investment are paid directly to the SDIRA custodian.
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  13. Investment Closure.   When the investment has matured either via a set termination date or a liquidity event (sale, refinance, etc.) funds are then returned back to the IRA.  Each SDIRA will have slightly different paperwork requirements to formally close that project.  So, work with them directly.

And that’s it.

There’s a little bit more paperwork involved and slightly higher fees, but would it be worth it if you could dependably make 10% to 20% more than the stock market annually?  You bet.

With 37th Parallel, SDIRA funds can be used for multi-family investments, hotel and other commercial projects, private lending, and our family of cash flow and equity funds.

To learn more please schedule a one on one consultation.

888.837.3720 | info@www.37parallel.com

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Comments

  1. rod estle says:

    I was thinking of setting up a solok but I have questions, do you know other TPA’s that would be able to help me? Thanks

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