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Crowdfunding with a Self Directed IRA

Crowdfunding with a Self Directed IRA.

Video Highlights

[0:14] What is crowdfunding?

[0:44] Who can use crowdfunding as self directed IRA investment options?

[1:07] This Huffington Post article explains some self directed IRA advantages.

[1:37] Learn the costs of self directed IRA – why it isn’t for everyone.

[2:10] This article contains a misleading bit with a list of self directed IRA custodians.

[2:52] Here’s what TPA means, and why it’s different from a custodian.

[3:29] Can a TPA help with self directed IRA plan?

[3:51] You should always ask this one question.

[4:43] Should you do business with a TPA?

[5:19] Here’s how to do your due diligence with your self directed IRA.

[5:45] See what’s coming up next week!

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Crowdfunding with a Self Directed IRA.

Recently, there was a great Huffington Post article about using your IRA to invest in crowd-funding.

What is Crowdfunding?

You’ve probably heard of crowdfunding, or at least someone who has used crowdfunding to build a startup or produce a record or a film. The most common types are the donation based crowdfunding platforms, such as Indiegogo or Kickstarter. With websites like Indiegogo and Kickstarter, you are likely to see all types of endeavors, like a new product or an indie film, being fully funded through donations. Often the campaign sponsors will post incentives for larger donations, such as: early releases, tee shirts, coffee mugs, production rights, etc. But that’s only where the idea started.

Now, it’s slowly creeping into investment portfolios and self directed IRAs. However, currently you can only invest, not donate but invest, in crowdfunding if you are an accredited investor, which means you must have an annual income of $200,000 or more, or have a net worth of $1,000,000. The good news is, for some time, there has been talk about a change in the regulations. Soon, regulations will allow anyone to invest their IRA in new startups and investments of that nature.

Self Directed IRAs Reap Benefits of Their Own Diligence and Tenacity

The Huffington Post article did a great job characterizing the perfect candidate for a self directed IRA when it said, “[…] Using a self directed IRA is not for the investor who wants to deposit money one day and then pick it up years later in its larger form. It’s for the active, diligent investor who will be able to attend to the requirements of the investment. They include having a qualified third-party custodian to hold the assets, and ensuring that there is no self-dealing, such as investing the IRA funds in entities owned by the IRA’s beneficiary or relatives. Tax implications and other realities of investing also need to be watched and handled properly by investors who direct their own IRA funds” – Huffington Post

Self directed IRAs can produce great results for those who have the time and energy to spend on their investments, but like the article points out, self directed IRAs are not for the investor looking for a quick buck, but the one who sees the advantage in their own diligence and tenacity.

Don’t Believe Everything You Read: What is a Self Directed IRA Custodian?

Overall, the article was very informative and well written; however, I must point out one qualm. Out of the 52 custodians they named at the bottom of the article, only about half are actually recognized by law as custodians. Although all of them allow their clients to invest in alternative assets, such as real estate, precious metals, and so on, nearly half of them are what are known as TPAs, or Third Party Administrators.

What is a TPA or Third Party Administrator? The difference between a TPA and Custodian.

The definitive difference between TPAs and custodians is simple: custodians are regulated by a government institution, whereas the TPAs are not. Every twelve to eighteen months, government employees visit the custodians to perform audits to ensure the money and assets are being handled properly.

Third Party Administrators – Questions to Think About. Do your Due Diligence!

TPAs are a great resource when you want to self direct your own IRA, but need a little extra attention. TPAs are still required to use a custodian to hold title to the money and the assets. So, be sure to ask the TPA who their custodian is and about the relationship between the two. This can be a tipping point while shopping around. Be sure to understand the difference between a custodian and a TPA and just ask some exploratory questions.

The best first step is knowing what you want. The second step is finding them. The article is a great introduction to the world of self directed IRAs. If you’re interested in self directed IRAs or dipping your toes into crowdfunding, I would urge you to take a look at the article in the Huffington Post and, if you have time, come back and tell us what you think. We’d love to hear from you.


Today I’d like to talk about an article that I recently read from the Huffington Post. It’s titled 50 Self-Directed IRA Custodians for Investment Crowdfunding.

Crowdfunding is a relatively new term created by the JOBS Act. You may have heard of crowdfunding in the donation arena, with places like Kickstarter and IndieGoGo where you can fund a new product, somebody’s record or somebody’s film and that kind of thing. However, crowdfunding is going to be available to individuals to invest in startup businesses.

Currently, you can only invest in crowdfunding if you’re an accredited investor, which I think you have to have at least $200,000 annual income or a net worth of $1 million.  We’ve been hearing that soon they’re going to get the regulations written so that everyone who has a few thousand dollars can participate in crowdfunding.

The good things about this article, the things I thought were very interesting are, a quote here from it is, “Using a self-directed IRA is not for the investor who wants to deposit money one day and then pick it up years later in its larger form.  It’s for the active, diligent investor who will be able to attend to the requirements of the investment.”

I think that’s a very good quote.  I think that’s very important to understand, as I’ve said that several times on Tuesday at Two, on videos on our YouTube channel as well as on our website, a self-directed IRA is not necessarily for everyone.  You need to be able to understand what you’re investing in, make some decisions and you then have to monitor the investment.  It’s not a matter of putting in a mutual fund and letting it sit there for 20 or 30 years, and like the article says, coming back later and hoping it’ll be larger.

That’s very good and there is some other really good information about the difference between individual retirement accounts offered by brokerage houses and banks and the ones offered by custodians such as Sunwest Trust.

The one thing that I wanted to mention that was maybe a little misleading in this article is that they named 52 – they said there were 50 when they started writing the article, now they are 52 – and they referred to them as self-directed IRA custodians who are open to alternative investments. I wanted to point out that of these 52 what they’re calling custodians, I didn’t go through and count, but I think probably less than half of them are actual custodians. The other ones are third-party administrators, or what we call TPAs in the industry.

The very distinct difference between there is that the custodian is a regulated entity. They’re a regulated entity by a government institution typically in your state or federally. It might be a bank that’s regulated.  It might be a state chartered trust company that’s regulated.  Someone comes in every 12 to 18 months and audits that business to make sure that they’re handling the money and assets correctly.  They’re doing what a trust company is supposed to do as custodian for self-directed IRA.

The TPAs that are mentioned in here also can help you with your self-directed IRA and it can accept accounts, but they must have a custodian to actually hold title to the assets.

One thing to ask whenever you’re looking for a self-directed IRA is to ask whoever you’re talking to, “Are you the custodian? Are you actually a custodian?  And if you are, how are you a custodian?”  In order to be a custodian that is regulated by Internal Revenue section 408, basically what it says is that you have to be a bank or someone who is regulated by the state banking regulators–trust companies fall under that definition.

You need to ask, “Are you a regulated custodian or are you a TPA a third party administrator? And if so, who is your custodian and what kind of controls does that custodian have over the assets that are held in your company?”  You want to understand and know the answers are to those questions and you want to understand and be comfortable with that.  I’m not saying that you shouldn’t do business with the TPA.  I’m just saying make sure you understand who the custodian actually is and what kind of controls that custodian has over the way assets are held particularly cash for that third-party administrator.

Other than that, it was a great article.  I think it’s interesting to see how many companies there are out there, because when Sunwest Trust went into business a few years ago back in 2004, there was only a handful. Now, at least according to this article, there are 52 different companies. There are probably more than that.

I’ve talked before about doing your due diligence for your investments.  I would also now encourage you to do your due diligence for your custodian or your third-party administrator, the people that are going to take care of your self-directed IRA and make sure you’re comfortable with how they are regulated and how they handle their accounts.

Thank you for watching Tuesday at Two.  I’m glad that you are able to come and watch today and I hope that it was worthwhile for you.  Stay tuned for next week.  I just arrived back from a conference in Washington DC with the Retirement Industry Trust Association. I’ll give you the highlights of that;  I think it’ll be very interesting.  You can get an idea what’s going on in our nation’s capital regarding individual retirement accounts.  Thank you.

Crowdfunding with a Self Directed IRA – New Opportunities was published on:

Terry White

About Terry White

I started my business career after getting my degree in Accounting from the University of New Mexico in 1983. My first job was as a controller for a local title company, and in 1987 I started First Financial Escrow, Inc. Over the years I played a part in several startup companies including First Financial Equities, Inc., First Financial Trust, Inc., First Financial Marketing, Inc. and Asset Ventures, Inc. In 1997 First Financial Escrow, Inc. was able to purchase the escrow accounts from Sunwest Bank and changed its name to Sunwest Escrow. As the market changes, Sunwest has grown and changed along with it. Besides my wife, Sheila, we have three boys, two daughters-in-law, one grandson, another grandson on the way and a future daughter-in-law. Sunwest is my passion, and I enjoy coming to work every day to see what will happen next. I enjoy fly fishing, spending time in Colorado, biking and watching my boys play soccer.