UPDATED: What do you know about a "Self Directed IRA"?Submitted by BugMan on Fri, 06/18/2010 - 17:25
Anybody here know anything about 'Self Directed IRAs'? I'd like to liquidate my IRA at Morgan Stanley and create one where I control the investments. From what I've researched, you can set up an LLC where you are the manager, and you can write checks from the checking account to invest. You still must have a qualified "custodian".
My plan is to purchase land that is partly planted timber, but also has some open farmable portions, woods, etc. There are rules, such as you can't 'use' the property, work on it yourself, anything you make must go back into the IRA, etc.
Anybody have any experience with or knowledge about these? Any pitfalls? Thanks in advance.
UPDATE: I end up setting this up, and by request am providing the procedure that I followed. Do your own research, I can't be sure I haven't done something wrong here, but things seem to be working out as planned.
Here's what I did:
1. Set up BugMan IRA LLC (not real name)
The "Operating Agreement" is a document that must be filed, is very specific in what it must include, and MUST be submitted by an attorney. My attorney was ignorant on the process – in fact very few attorneys will understand this process. There is a canned agreement that bought from the internet and provided to my attorney.
2. Find a custodian. I used “IRA Services”, a firm in California (I’m in Florida). They require handling fees, of course, and you must maintain a $300 account in their bank. They must file a property value with the IRS each year, and charge a small fee. Their initial fee for the transaction was $120.
3. My IRA was at Morgan Stanley. I had to close the account, and get them to transfer the money to IRA Services. This is important… don’t get the money directly from Morgan Stanley or you will be getting a ‘distribution’ and pay taxes on it. It’s much more seamless to do like this.
4. IRA Services then sends the money to BugMan IRA LLC checking account. I pay for the land, and any services that I use to maintain the land. I use a company to help me with prescribed burns, selling the timber, etc. DO NOT pay for anything out of your pocket, and DO NOT take any profit from this land yourself. It MUST go back into the LLC account!
You cannot live on the land, or use it in any way except for its investment purpose. You cannot rent it to family members, or get any kind of profit from it personally. Learn and follow the rules, else you may get burned.
That’s about it in a nutshell. It was a pain learning how to do this, but in retrospect I’m glad I did. Now I control my investment instead of some near stranger in an office somewhere. DO NOT TRUST ME FOR ADVICE on this, do your own research. I’m and geologist/paleontologist, and a financial/investment dummy!
I look forward to the comments of those who are smarter in finances than me...