Tips on Setting Up a Self Directed IRA – Your Due Diligence Team

Tips on Setting Up a Self Directed IRA – Due Diligence Team

Video Highlights

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

[0:54] Make sure that 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] You can avoid disaster by having a good financial advisor.

[5:19] Are all these people worth the money?

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

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Avoid Possible Future Financial Calamity

Form Your Circle of Trust – a Team of Alternative Investment Specialists – Your IRA Due Diligence Team

Doing your due diligence on your investments can mean the difference between investment success and financial disaster, so 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.

However, doing all of that due diligence by yourself is overwhelming, and there are a number of people who have dedicated their lives to their profession, becoming specialists.

The question is, who 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 disasters. 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 make sure an investment is legitimate and done correctly than to find out later that you’ve done something wrong or you’ve been swindled.

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

First, it’s important to understand precisely what due diligence means. So, what is due diligence, relative to the world of investing? Simply stated, due diligence is the process of thorough, careful investigation into a potential investment. Through the due diligence, you should uncover any and all risks, along with potential benefits, which can then be weighed up, so you and your team can make an informed decision on 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. As an Internal Revenue Service requirement, an IRA custodian is essentially 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, it’s also important to understand what is beyond their scope of responsibilities. When you are self directed, the IRA custodian is not required to perform any research on potential investments.

The responsibility for investigating and researching investments lies with you, the account holder. It’s your responsibility to develop your team of investment specialists, your circle of trusted advisers.

Self directing your IRA can be extremely rewarding, but it isn’t a guaranteed success. That’s why it’s important to have a solid team of experts on your side. 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, and standard arrangement just won’t do. An IRA custodian can provide you with valuable information on your IRA account; they can also be a source of a wealth of information to assist you in knowing which possible alternative investment options are prohibited and which are not.

There are a lot of custodians out there, but 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 the title suggests.

Call around. Ask questions. Don’t make a quick decision.

Self Directed IRA Custodian Fees

When shopping for a custodian, you’ll also want to watch for fees. Some fee schedules can be confusing and have hidden fees. Again, call around. Ask questions. Keep in mind, if their fees are too high, you will need to have larger returns on your investment to make the investment worthwhile.

See Self Directed IRA Custodian Fees

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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 that you would 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 some time to perform some research.

The Internet is an easy source of valuable information. If you are 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 with 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 that truly understands self directed IRA’s is valuable beyond measure. Especially if you are planning on having unique investments like a single member LLC or if you’re planning on having debt 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, which could be detrimental to your investment.

An attorney is always a good addition to your team. Especially if you are creating a single member LLC, it is wise to have a professional create the LLC documents for you. Not only is it a good idea to have your attorney create the documents, but also to give you some advice, once your IRA has purchased the membership units, to the LLC.

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. Many times, 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.

Beware of 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 them 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 are 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 aren’t blindly sending 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 are planning on buying precious metals for your IRA, it would be beneficial to look around for an honest metals broker. Find someone you trust.

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

Finding a precious metals broker you trust will save hours and 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 a realtor who specializes in investment properties. They can be a helpful ally, who can guide you through the 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. Keeping 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 lien against the property.

Peace of Mind

It may cost a few hundred dollars to create your perfect time, but it’s a small price to pay to have your ducks in a row. To have peace of mind, knowing that 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 into your future success because a solid team behind you and your investments is worth every penny.

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Setting up self directed ira due diligence team

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 is going to be talking about the team that I think you need to create so that you can properly take care of your self-directed IRA.

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

The other thing to look out for that we’ve talked about before is fees. Make sure that the fee structure of the custodian works for what you want to do. If the fee structure’s too high, then the returns that you need to get on your investment need to be higher in order to just 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’re going to get with a 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 give you some help in knowing 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.

I think, along with the idea of a single-member LLC or even just your IRA in itself, you need a good accountant, a good CPA or tax person that understands how self-directed IRA’s work and especially if you’re going to do something as unique as maybe the LLC, a single-member LLC or you’re going to have debt in your IRA. For those kinds of things, it would be very important to have a good accountant that 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, I think you would want to find a good real estate broker. A broker that you can trust can help you find the right kind of property and help you determine the value of property later on–you’re going to need to be able to provide market value reports to the custodian on December 31st of every year. Having a good realtor that can get you a market analysis and [comparables] and stuff would be very valuable.

If you’re going to buy precious metals, I would shop around and find just the right precious metals broker, so that the person that you working with is someone you know and could trust. Someone that you could depend on to deliver the gold, silver or whatever you happened to buy. If you’re going to use Delaware Depository (who we use) or if it’s going to be held directly in your IRA, they get it delivered to them in a timely manner. If you’re going to hold it yourself in a bank’s safety deposit box or something, make sure you can get it in a timely manner and get it delivered over there and held in a safety deposit box.

Another thing, if you’re going to be dealing with some kind of a special investment, you’re dealing typically with, we call them, an investment broker or a sponsor. Make sure that’s somebody that you work well with. Make sure that 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 be owning something, lending money or however you choose to make that investment. That investment sponsor or investment broker that brings investments to you has got to be someone that you trust and you feel comfortable with.

I think maybe the last, or maybe one of the most important members is a financial adviser. You can look at a lot of these other investments, but having a good financial adviser that you can go to, sit down with and explain to them what you want to do can help you determine your long-term goals. They can also help you decide where you plan on being, given your age, and what amount of money you’re going to need when you decide to retire (to provide the kind of income that you want) – all those kinds of things, a financial adviser can help you with.

In many instances that I’ve seen over the years, when people lost their money or something happened, they accidentally got involved in a Ponzi scheme or something. A lot of that can be avoided just by having a good financial adviser or a good lawyer that you could take the paperwork to and ask them to review.

I know a lot of times, people 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, the money you spend with 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. 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 and I just think it’s a great idea.

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