Pros and Cons of Self Directed IRA Real Estate Investing
If you are looking for total control of your IRA investments and
are tired of having to refer decisions over investment
strategies to unimaginative advisors who tie your hands behind
your back when it comes to making investment choices, or who is
simply limited to his or her company's range of products or
investment policies, and of custodians who over-stringently
interpret IRS investment regulations, then a self directed IRA
is for you.
But if you want a truly
self directed IRA and don't want to be bound into
traditional investment choices or limited in your ability to
invest your money as you see fit when you see fit you need to
take a step further. Then you should be looking at setting up a
self directed IRA LLC. In other words, you become in effect the
director of a limited company responsible for building your own
IRA.
The advantages of this move are immediate and obvious -
Since you effectively become the custodian of the IRA, you will
no longer have to pay transaction costs for every move you make
with your self directed IRA LLC.
Since you control and handle all the transactions, the
custodian for our IRA can be paid a flat annual fee. You can
benefit from the lowest IRA custodian fees in the market. It
does not matter if you have one million dollars in your IRA or
one billion. Your custodial fees are fixed.
You have absolute decision making power - no ifs, no buts, no
maybes; you do not have to ask permission of anyone else, you
are the decision maker. It really is a truly self directed
IRA.
A truly self directed IRA plan can be used as funding for a
down-payment for a real estate purchase.
Because it is set up as a limited liability company (LLC), your
self directed IRA assets are protected from creditors and
litigators. Without the LLC, your retirement funds could be
directly exposed to a frivolous lawsuit.
Investment Variety
You can benefit from massively extended range of investment
choices; of course, you can still choose to invest in the
traditional choices of stocks and mutual funds, but other
choices include real estate, tax liens, tax deeds, options - any
legitimate business investment opportunity that doesn't breach
IRS rules (which is most of them)
Having such a wide range of choices enables you to diversify
your holding; essentially, you reduce your risks by spreading
your investments over several choices (the opposite of putting
all your eggs in one basket)
You can invest in international or foreign real estate in such
places as Costa Rica with your IRA - LLC without asking for your
custodian's permission.
Finally, moving to an IRA LLC is an affordable choice for
almost everyone; it is estimated that it is less than a half of
the cost of having an IRA facilitator
In short, your self directed IRA LLC is a truly self directed
IRA because it maximizes your ability to control how your IRA is
invested. You are no longer limited by other's choices,
investment options or company policies. It is your IRA, your
way.
But, as with everything in life, there is a downside - at least,
potentially.
I have already hinted that traditional financial advisors are
not best placed to give advice on other kinds of business
investment such as real estate. They will have a good
understanding of stocks and shares. Would you ask your dentist
to do an angioplasty? By the same token, a traditional advisor
will not know how to leverage the best deals in real estate or
in other kinds of business investment.
It is important therefore that you choose an IRA advisor who can
help you structure complex IRA and real estate entities,
evaluate investment opportunities and avoid infringing on the
self directed IRA rules in setting up investments.
Consequences of setting up your IRA-LLC incorrectly: "Internal
Revenue Service could step in and simply disqualify the IRA,
resulting in huge tax bills along with additional penalties for
account holders who are younger than age 59