Self-Direction is a vehicle that allows the money in retirement accounts to be used in real estate investing. It’s a way to get that money out of the traditional investments (like stocks and bonds) and working in real estate! While it is a great tool to increase returns, there are very important considerations to understand with self-direction. Not only do we create these vehicles for clients, we also provide education to help clients protect their money and avoid the pitfalls. We prefer that all our clients become educated in self-direction prior to setting it up.

GET OUR SELF-DIRECTION EDUCATIONAL VIDEO HERE

 

401(k) Trust

Our preferred self-direction tool is the Solo 401K Trust (also called the Individual 401K Trust or Owners 401K Trust). There are a number of reasons for this: It reduces custodian fees and eliminates transactional fees, some better UBIT tax rules, and the penalties for prohibited transactions aren’t quit as bad. You can also fund it faster than an IRA and even when you can’t contribute to an IRA! It starts by creating a Solo 401K Trust (the “Plan”). This trust then opens a bank account at just about any bank. Then you transfer your 401K money from your current custodian (or start making contributions) to the trust’s bank account. Then, boom, you have complete control over your money just like any other bank account.

NOTE: You are responsible to know what a prohibited transaction is and if the UBIT tax applies! We can help you with this.

IRA, LLC

This is a tool that reduces the transaction fees of self- directed custodians. It’s also called “Checkbook IRA” or “Checkbook Control”. It begins by setting up a specialized LLC that your IRA itself will own. You do not own the LLC, your IRA does! While you can be the manager of this LLC, we advise that you have someone who is not a disqualified person be the manager. After setting up the LLC, it gets a bank account. Then you “direct” your custodian to “buy” this LLC (think of it as an investment your IRA is making). Then, your custodian will transfer your IRA money to the LLC’s bank account. And now you have direct control over the money and can avoid the transaction fees (and possibly lower the custodian fees).

NOTE: You are responsible to know what a prohibited transaction is and if the UBIT tax applies! We can help you with this.

NOTE: Prohibited transactions and UBIT taxes are serious considerations when thinking about self-directing any retirement account. You should seek competent legal, tax and investment advice before proceeding. Nothing on the page, or website, is offered as legal, tax or investment advice. Breglio Law Office does NOT provide investment advice or opportunities.