How to Quickly Open a Self Directed IRA so
You Can Invest in Real Estate, Notes and
Deeds of Trust IRA funds are typically invested in public traded stocks, bonds, mutual funds and money
markets, but can also be invested in Real Estate, Trust Deeds, Mortgages, Promissory Notes and
Private Stocks or Bonds. It can be quite profitable to purchase your favorite investments with
your IRA funds to so you can take make stronger returns and avoid income and capital gains
taxes.
To take advantage of this, your current IRA custodian must allow real estate and/or trust deed
investments with your account (most custodians don’t allow this). If not, you can easily convert
or rollover your IRA/401K into a “self-directed IRA” account. There are about a dozen
custodians which specialize in self directed IRAs which you can choose from. The ongoing
management and transaction fees vary from custodian to custodian, and you should be aware that
the fees can be more expensive than with a normal IRA account.
Here are several self directed custodians for you to choose from:
PENSCO Trust Company
Customer Support
(800) 969-4472
Web Site
www.penscotrust.com
The person who can help you directly is Karen Walls at 866-818-4472 x5709
Equity Trust Company
Customer Support
(888) 382-4727
Web Site
www.trustetc.com
The person who can help you directly is Danielle Folop at 888-382-4727 x167
Trust Administration Services Corp.
Customer Support
(800) 455-9472
Web Site
www.trustlynk.com
Most investors prefer to combine their IRA accounts. If you have several IRA accounts, you can
combine them together at the same time you move to a self directed account so you end up with
a bigger amount for you to work with. You’ll find it simpler and more cost efficient to invest
with one self directed IRA account of $100,000 in real estate and notes, rather than four accounts
of $25,000 each.
Note: You will not be able to combine your ROTH IRA with a Non-ROTH IRA.
To set up your self directed IRA account, click on the links above and decide which of the self
directed custodians you want to use. You can also find other custodians by searching the web for
“self directed IRA custodians”. Make sure that the custodian you select is set up to assist with
self-directed investments in real estate and notes and not just allowing you to self direct your
investing in stocks and bonds.
Here is a summary of the steps that are required to move to a self directed IRA custodian
1) Print out the new account application and the transfer existing account forms
2) Using your existing IRA account statements, fill out the forms making sure to use the
correct name and account number from your existing accounts
3) Visit your local bank to get a “Medallion Signature” stamp. This is similar to a notary’s
stamp, but it is used for important paperwork such as IRA accounts to help protect you
from having someone transfer your accounts without your approval.
4) Overnight the filled out forms and copies of your existing IRA account statements to the
NEW self directed IRA custodian. Your new custodian will open your self directed
account and then arrange the transfer of funds from your existing IRA account(s).
The entire setup and transfer process usually takes 2 to 4 weeks. Once established, your self
directed IRA account can then be invested directly into real estate, promissory notes, deeds of
trust and other non traditional investments. To make an investment, you will fill out another form
which allows you to tell your custodian what to do with your IRA funds.
Prohibited Transactions when Investing with Your Self
Directed IRA
When investing with your IRA funds it is important to understand that there are some prohibited
transactions. The following are defined as prohibited transactions when they involve the
accountholder:
•
All of your transactions must be “Arms length” with any benefit from the transaction
belonging entirely to your IRA. You also can’t buy or sell assets to or from your IRA and
yourself or certain family members (see “disqualified persons” below).
•
•
•
•
•
•
Borrowing money from the IRA.
Selling property to the IRA.
Receiving unreasonable compensation for managing assets for the IRA.
Using the IRA as security for a loan.
Buying property for personal use with the IRA.
Investment in collectibles or life insurance policies.
What is a Disqualified Person?
A disqualified person is the IRA holder and their spouse, the IRA holder's lineal descendants,
ascendants (parents/children) and their spouses. Note that the IRA holder’s brothers and
sisters are ok. Any corporation, partnership, trust, or estate in which the IRA holder has a
50% or greater interest. Anyone providing services to the IRA, such as the trustee or
custodian. Check with your self directed custodian for a complete list of prohibited parties.
Buying Real Estate or Partnership Interests in Real Estate
Advantages of investing in real estate with your IRA:
•
•
•
Capital gains and income are tax deferred (tax exempt if it is a ROTH IRA)
Earn higher returns by taking advantage of distressed properties which are being sold
below market value.
Create passive income by investing in partnerships or LLCs that purchase, fixup, and
manage real estate using your IRA funds.
Disadvantages of investing in real estate with your IRA:
•
•
•
Since the IRA is tax exempt, you don’t get the benefit of depreciation on the property.
You may be very limited in how active of a role you can play in property management.
Unless you are investing with a property acquisition company, leveraging or mortgaging
a property can be more difficult due to the requirement that only non-recourse debt is
allowed.
Real Estate Investing Ideas for Your IRA:
•
•
•
•
Buy and flip properties and avoid capital gains tax - short term.
Buy triple net lease properties (low maintenance, no depreciation) – long term.
Buy interests in LLCs which acquire and manage commercial real estate.
Create an LLC, which is owned by your IRA, and have the LLC purchase real estate.
This reduces liability exposure, and can also reduce custodian fees. There are several
companies out there that will setup an LLC like this. Setup fees vary from $2500-5000.
Investing Your IRA in Trust Deeds and Promissory Notes
Trust deed Investing with an IRA is way to get favorable tax treatment and above average yields
(10%+). Most investors prefer safe, low loan to value, 1st position mortgages. Junior position
notes are not advisable unless you keep a large cash reserve in your IRA account to cover the
possibility of advancing funds to a senior lien so you can protect your position in the event that
the payments are not made.
Advantages of investing in notes with your IRA
•
•
Notes tend to be a positive cash-flow investment. Interruptions to your cash-flow can
occur if/when the borrower defaults.
1st Mortgage Notes usually don’t have expenses associated with the note. Possible
exceptions are if the borrower defaults on payment of property taxes or fire insurance.
Disadvantages of investing in notes with your IRA
•
•
Trust Deeds and Notes owned by an IRA can’t be easily leveraged so your rate of return
is limited to the interest paid on the note.
If the borrower defaults on the note, your IRA may have to foreclose on the property
which it would then own after completing the foreclosure.
WARNING:
Using your Self Directed IRA funds requires careful attention to IRS laws and regulations. If you
violate the IRS laws regarding self dealing or selling to disqualified persons it can cause a
serious taxable event and result in your IRA being effectively distributed and penalized. Make
sure to review all applicable laws and or regulations with your Self Directed IRA custodian prior
to making any self directed investment.
Disclaimer:
This report was provided to you in an effort to help you learn more about self directed IRAs.
The person who provided this report to you is not an attorney, and this report is not intended to
provide legal advice. Consult your attorney, CPA, and/or your IRA custodian for up to date
information prior to making any investment.
IRA Resources, Inc 858 459-‐1212 La Jolla, CA Good service, cheap, fast, they are mostly a custodian for private placements, but will consider trust deeds and real estate for some clients Sterling 800 955-‐3434 Waco, TX slow but cheap, always on hold for 15min before I reach a person Trust Administration Services Corp 800 455-‐9472 Carlsbad, CA Through First Regional Bank, I've had good service with them. Equity Trust 440 323-‐5491 Elyria, OH Probably the cheapest if you do more than 10 transactions a year. Flat annual fee, no transaction fees, reportedly fast & good service Polycomp Admin Services 800 952 8800 Roseville, CA two CA offices, no personal experience. Pensco 800 969-‐4472 San Francisco, CA Big and reportedly fast and good service, but not cheap. Entrust Administration, Inc 800 392-‐9653 Offices nationwide Many Offices, good service, prices have gone up drastically in last few years Guidant Financial Group, LLC 888-‐IRA-‐XCEL Bellevue, WA Unique solution, very flexible, but cant justify the price without 500K funded, no personal experience. Lincoln (now called Fiserv) 800 521-‐6974 Denver, CO One of the biggest, and reportedly slowest http://www.iraservices.com 650 593-‐2221 San Carlos, CA no personal experience PENSCO Trust Company
Client Services
(800) 969-4472
Web Site
www.penscotrust.com
FISERV ISS (Formerly Lincoln Trust Company)
New Business
(800) 521-6974
Current Account Holders (900) 962-4238
Web Site
www.fiserviss.com
Sterling Trust Company
Client Services
(800) 955-3434, option 5
Web Site
www.sterlingtrustcompany.com
Equity Trust Company
Client Services
(888) 382-4727
Web Site
www.trustetc.com
American Church Trust Co.
Client Services
(800) 486-6888
Web Site
www.churchtrust.com
Millennium Trust Co.
Client Services
(800) 258-7878
New Accounts
(888) 880-0828
Web Site
www.mtrustcompany.com
Trust Administration Services Corp.
Client Services
(800) 455-9472
Web Site
www.trustlynk.com
Q. What transactions are prohibited?
A. The following are defined as prohibited transactions when they involve the accountholder:
•
•
•
•
•
•
Borrowing money from the IRA.
Selling property to the IRA.
Receiving unreasonable compensation for managing assets for the IRA.
Using the IRA as security for a loan.
Buying property for personal use with the IRA.
Investment in collectibles or life insurance policies.
Millennium Trust Co., 820 Jorie Blvd., Suite 420, Oak Brook, IL 60523, (800) 258-7878
Pensco Trust Co., 450 Sansome St., 14th Floor, San Francisco, CA 94111, (866) 8184472.
Sterling Trust Co., 7901 Fish Pond Road, Waco, TX 76710, (800) 955-3434
The Entrust Group, 555 12th St., Suite 1250, Oakland, CA 94607, (800) 392-9653
Trust Administration Services Corp., 5950 La Place Court, Suite 160, Carlsbad,
CA 92008, (800) 455-9472
U.S. Trust Corp., a wholly owned subsidiary of Bank of America, 114 West 47th Street,
New York, NY 10036, (800) USTRUST (878-7878)
Wells Fargo Bank, N.A., through its Investment Management and Trust (IM&T) group.
Accounts are handled through local Relationship Managers, so visit
wellsfargo.com/locator/ for the branch near you.
Directory of Self-Directed-IRA Facilitators
Complete IRA, 7268 S.E. Lamphier St., Milwaukie, OR 97222, (888) 398-3660
Guidant Financial, 13228 N.E. 20th St., Suite 300, Bellevue, WA 98005, (888) 472-4455
IRA Resource Associates, 418 N.E. Fourth Ave., Suite 101, Camas, WA 98607-2128,
(360) 834-6689
BeneTrends Inc., 450 B St., Suite 1950, San Diego, CA 92101, (619) 692-3807
SD Cooper Co., Wind River Park, Suite 300, 18141Beach Blvd., Huntington Beach CA
92648, (866) MY-ERSOP
Directory of Non-Recourse Lenders
Bar-K, Inc. Walter Ng, 318 Diablo Road, Suite 200, Danville, CA 94526, (925) 820-3535
CTX Mortgage Co., Mark L. Robbins, Novato, CA, (415) 893-1744,
[email protected]
Financial Advantage, Michael Thacker, Everett, WA, (206) 390-599,
[email protected]
First IRA Mortgage, 7375 E. Stetson Drive, Suite 106, Scottsdale, AZ 85251
North American Savings Bank, Jason Zook, Account Executive-IRA Lending, Lee's
Summit, MI, (816)-347-4278, jzook@@nasb.com News flash: On Aug. 15, NASB introduced a 30year-fixed option for your IRA! Cost is ¼ percent more than the base interest rate, and here's a coupon for $100
off of closing costs.
Pacific Horizon Financial, Andy Kean, 1927 Adams Ave., Suite 200, San Diego, CA 92116,
(619) 491-0200 x111
Sycamore Creek Mortgage, David Lodder, 318 Diablo Road, Suite 200, Danville, CA
94526, (925) 820-3535
David Doscher says he can help with non-recourse loans in Texas. Email
[email protected].