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