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How To Set Up A Self Directed IRA and Your Due Diligence Investment Team

Tips on Setting Up a Self Directed IRA Due Diligence Team

Avoid Possible Future Financial Calamity Form Your Circle of Trust – A Team of Alternative Investment Specialists

Doing your due diligence on your investments can mean the difference between investment success and financial disaster. That’s why it’s essential to assemble a qualified, dedicated team of investment specialists that will work for you to determine whether a potential investment is in your best interest.

Completing all of the due diligence by yourself is overwhelming. Fortunately, a number of people have dedicated their lives to their profession and developed specialized skills that you may lack.

The question is, whom should you include in your circle of trust?

A team of investment specialists can help save you from investment disasters, such as Ponzi schemes and other investment scams. There are many Bernie Madoff-types out there, hungry to find new victims.

It’s always smarter to spend a few extra dollars up front to ensure an investment is legitimate and done correctly than to find out later that you’ve done something wrong or been swindled.

In short, when it comes to investment, an ounce of prevention can be worth a pound of cure – and then some.

Video Highlights

[0:23] Here’s how to set up your own self directed IRA!

[0:54] Make sure your self directed IRA custodian fees match your investment goals.

[1:25] Make sure you have a good attorney who understands self directed IRA rules.

[1:57] You should also have an accountant who handles Roth IRA investments.

[2:27] What if you’re involved in real estate IRA investing?

[2:54] How should you handle precious metals?

[3:31] Understand how your investment broker or sponsor works for you!

[4:07] Your financial advisor: the most important team member of all!

[4:40] Avoid financial disaster by having a good financial advisor who understands your goals.

[5:19] Is your self directed IRA advisory team worth the money?

[5:48] Have any questions or comments about managing self directed IRA accounts?

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First, it’s important to understand precisely what due diligence means. Simply stated, due diligence is the process of thorough, careful investigation into a potential investment. Through due diligence, you should uncover any and all risks, along with potential benefits. These can then be weighed so you and your team can make an informed decision about whether a particular investment opportunity is right for you and your financial situation.

Did You Know?

Many investors erroneously believe that their IRA custodian conducts these due diligence investigations, but this is not necessarily true.

The custodian is just one member of your due diligence team, one part of your circle of trust.

The Internal Revenue Service requires an IRA custodian to act as a record keeper for your IRA account; the custodian is also responsible for tending to all of the IRS reporting for your IRA account.

While it’s important to understand what an IRA custodian does for you, it’s also important to understand what is beyond their scope of responsibility. When your retirement account is self directed, your IRA custodian is not required to perform any research on potential investment opportunities. 

The responsibility for investigating and researching investments lies with you, the IRA account holder. Therefore, it is your responsibility to develop your team of investment specialists and your circle of trusted advisors.

Self-directing your IRA can be extremely rewarding, but it does not guarantee investment success. That’s why it’s important to have a solid team of experts on your side. But who are they, and why are they important?

1. Self Directed IRA Custodian:

To invest in alternative assets, you need to establish a self directed IRA with an alternative IRA custodian. A standard IRA arrangement just won’t do.

An IRA custodian can provide you with valuable information about your IRA account; they can also offer a wealth of information to help you know which alternative investment options are prohibited and which are not.

There are a lot of custodians out there; however, no two are the same. When looking for your custodian, be sure they allow you to make the kinds of investments you had in mind. Just because they call themselves a self directed IRA custodian doesn’t necessarily mean they will allow you to invest as freely as their title suggests.

Call around. Ask questions. Don’t make a quick decision!
When shopping for a custodian, you’ll also want to pay attention to the fees. Some fee schedules can be confusing and contain hidden fees. Again, call around. Ask questions. Keep in mind that if their fees are too high, you’ll need larger returns on your investment to make the investment worthwhile.

Learn How Self Directed IRA Custodian Fees Are Charged – Pricing Models Compared

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2. You, the Self Directed IRA Account Holder:

When you are self directed, you play a central role in your success (because, after all, you are self directed). The first thing you should consider when you find an alternative investment you’d like to invest in is to gather information for both you and the rest of your Due Diligence Team. When you’re considering an opportunity, take time to do some research.

The Internet is a ready source of valuable information.

If you’re investing in a business or a limited partnership, then learn about the company. Find out how long they have been in business.

Find out if they are a member of the Better Business Bureau.

If so, are they in good standing?

Check them out and find online reviews.

Talk to people involved in the investment and use your best judgment.

If it sounds too good to be true, it probably is. If you’re investing in a security, then find out if the company is licensed to sell securities within their respective state.

This is a good starting point for your due diligence.

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3. CPA or Tax Professional:

Always consult a CPA or other tax professional who can provide you with information on tax implications and to ensure that the investment doesn’t violate any prohibited transaction rules. In fact, a knowledgeable tax professional can provide you with helpful information on the IRS rules concerning disqualified parties and self-dealing, so you can avoid any potentially problematic investments.

An accountant who truly understands self directed IRAs is valuable beyond measure. Especially if you’re planning to have unique investments – like a single- member LLC or debt instruments – in your IRA, it’s wise to have someone who understands the reporting that may, or may not, be needed.

4. Self Directed IRA Lawyer

Always ask your attorney to review any, and all, documents before you sign!

This is true in the investment world and beyond. In the case of your investments, a qualified attorney can spot any potentially problematic language in a contract that could be detrimental to your investment.

An attorney is always a good addition to your team, especially if you’re creating a single-member LLC. It’s wise to have a professional create the LLC documents for you and also give you advice after your IRA has purchased the LLC’s membership units.

5. Fee-Based Financial Planner:

It’s important to have a good financial advisor who you can sit down with and discuss your long-term plans and how each investment fits into those plans.

Often, bad investments can be avoided just by running the paperwork by an objective third party who can take a step back and see the possible pitfalls of each investment.

As investors, we can sometimes be blind to a bad investment because all we see is the potential to make a quick buck. That’s when we make mistakes.

Be careful when selecting your financial adviser.  By selecting a fee-based financial planner (one who does not make any sort of commission), the fee-based structure ensures your financial planner is objective, as there is no incentive for him or her to recommend a certain course of action.

The financial planner can provide recommendations on how the investment works with your short-term and long-term financial plan. We recommend consulting the National Association of Personal Financial Advisors if you’re seeking a qualified professional. Visit

6. Investment Broker or Sponsor

If you’re dealing with some sort of special investment, you might be working with what’s called an investment broker or an investment sponsor.

Be sure you understand the inner workings of the deal, so you don’t blindly spend money without understanding how it will bring you a return.

Also, be sure you understand how the broker is making his cut, and what his place in the deal is. If he’s helping you out of the goodness of his heart and it seems too good to be true, it probably is.

7. Precious Metals Broker

If you’re planning to buy precious metals for your IRA, it would be beneficial to look around for an honest metals broker.

The key is finding someone you trust.

When buying precious metals for your IRA, you want to trust every hand that touches your gold or silver throughout the process.

Finding a solid precious metals broker will save hours of stress.

8. Assembling an IRA Real Estate Team To Assist Your Due Diligence Efforts

Real Estate Agent

If your potential investment involves real estate, it’s wise to consult an experienced realtor who specializes in investment properties. A real estate agent can be a helpful ally who can guide you through the investment process.

Specifically, you’ll need a broker when determining the fair market value of your property, either to report for taxes or when you decide to sell the property. Adding a good real estate broker on your team will save headaches down the road.

Title Company

In the case of real estate investments, you can also benefit from consulting with a title company. Title insurance will provide you with peace of mind, so you won’t need to worry about any unexpected financial dings due to the discovery of a lien against the property.

Peace of Mind

It may cost a few hundred dollars to create your ideal investment team, but it’s a small price to pay to have your ducks in a row.

To have peace of mind, knowing you’ll be taken care of in your later years, is worth much more than a few extra hundred dollars in your pocket now.

Take the time and invest the money in a solid team.

It’s worth every penny.

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Setting up self directed ira due diligence team

Video Transcription

I was thinking the other day about what it takes to set up a self directed IRA and what you might want to think about before you do it. This video will focus on the team I think you need to create to properly take care of your self directed IRA.

The number-one team member you need is your custodian. As we’ve discussed, you should be careful and find a custodian that will allow you to make the kind of investments you want to make. Just because this custodian says they’re a self directed IRA custodian doesn’t necessarily mean they’ll allow you to buy and invest in that single-member LLC, or allow you to buy a piece of real estate.

The other thing to look out for, as we’ve talked about, is fees. Make sure the custodian’s fee structure works for what you want to do. If the fee structure’s too high, then the returns you need to earn on your investment must also be higher just to pay the fees. You might want to look at that and make sure that the fee structure of that custodian fits in with what you want to do and the returns that you think you might get with the particular investment you’re contemplating.

I think the next thing you need, depending on what you’re going to do if you’re going to invest in a single-member LLC, is to find an attorney, a lawyer, or someone who can create the LLC properly for you. And not only create it, but also give you some help to know how to handle the LLC once it has been created and once your IRA has bought all the membership units in that LLC. That would be an important thing.

In terms of a single-member LLC or even just your IRA itself, you need a good accountant, a good CPA or tax person who understands how self directed IRAs work – and especially if you’re going to include something as unique as the LLC, a single-member LLC or debt in your IRA. For those kinds of things, it would be very important to have a good accountant who understands how they work, understands the reporting that may or may not need to be done, and understands how to help you keep track of your self directed IRA investments.

If you’re going to invest in real estate, find a good real estate broker. A broker that you trust can help you find the right kind of property and help you determine the value of property later on. You’ll need to be able to provide market value reports to the custodian on December 31st of every year. Having a good realtor who can get you a market analysis and [comparables] would be very valuable.

If you’re going to buy precious metals, shop around and find the right precious metals broker, so the person that you work with is someone you know and trust. Someone you can depend on to deliver the gold, silver or whatever you happened to buy.

If you’re going to use Delaware Depository (that’s who we use) or if it’s going to be held directly in your IRA, the broker will get it delivered to them in a timely manner. If you’re going to hold it yourself in a bank’s safety deposit box, make sure you can get it in a timely manner and get it delivered to the safety deposit box.

Another thing: if you’re going to be dealing with some kind of special investment, you’re typically be dealing with (as we call them) an investment broker or a sponsor. Make sure it’s somebody you work well with. Make sure you understand what they’re doing, how they make a profit at what they do and, out of that profit, how they’re going to pay you for your particular investment—whether it’s owning something, lending money or whatever you choose to invest in. The investment sponsor or investment broker who brings investments to you must be someone you trust and feel comfortable with.

Perhaps the last – and maybe one of the most important – members of your team is a financial adviser. You can look at lots of other investments, but having a good financial adviser you can visit, sit down with and explain what you want can help you determine your long-term goals. They can also help you decide where you plan to be, given your age, and what amount of money you’ll need when you decide to retire (to provide the kind of income that you want). A financial advisor can help you with all those things.

In my experiences over the years, when people lost their money or something happened, they accidentally got involved in a Ponzi scheme or something. You can avoid a lot of that just by having a good financial adviser or lawyer who you can take the paperwork to and ask them to review.

I know people often don’t want to spend the extra few hundred dollars that those people charge. But I can guarantee you, from experience and from seeing what has happened to people in that past, that the money you spend on a good financial adviser, a good lawyer, a good accountant, a realtor (typically, the seller’s going to pay them) and various other people who are going to get paid in other ways—the money you spend with them is very well spent.

In other words, I can’t encourage you enough to make these kinds of relationships and build this kind of team before you start with your self directed IRA. You’ll be happier in the long run, and your self directed IRA will be more profitable. I just think a team like this is a great idea.

We look forward to seeing you again next Tuesday. We’ll have some more interesting topics. If you have any questions or comments, please feel free to leave them below, e-mail me, or call us here at Sunwest Trust.

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.