Self directed retirement plan types

Self directed retirement plans came onto the scene in 1974 when the Employee Retirement Income Security Act (ERISA) created IRA and 401(k) plans.

Although these retirement plans introduced new asset classes that investors could purchase and hold, the Investment management companies that implemented the IRA and 401(k) programs only provided access to the existing Wall Street fare of Stocks, Mutual funds, and Bonds.

In 1962 the self directed Solo 401(k) retirement plan was created to benefit small business owners. 

All of the self-directed retirement plans were affected by the 1997 Taxpayer Relief Act that gave investors access to new asset classes inside their tax-advantaged retirement savings plans.

Income-producing real estate, Precious metals, raw land, Crypto, Limited Partnerships, Tax Liens, and even startup companies became IRS-approved asset classes for both tax-deferred and tax-exempt Investment.

These options gave investors new ways to diversify their Investment Portfolios outside of Mutual funds, Stocks, and Bonds.

Obviously, esoteric assets like tax liens and startup companies are not smart Investment choices for investors without specialized knowledge.

Esoteric: intended for or likely to be understood by only a small number of people with a specialized knowledge or interest

Precious metals and income-producing real estate, on the other hand, are asset classes that a wider range of investors can benefit from.

In this article we focus on owning real estate and physical Precious metals inside Self-directed IRAs.

Self-directed IRA rules

Self-directed IRAs have desirable benefits but they also represent a potential risk.

If we fail to follow the rules the IRS may disqualify the IRA and disallow any tax benefits the IRA might have provided. Obviously the financial consequences from such an event could be significant.

Precious metals IRAs

With Traditional and Roth Precious metals IRAs the risk of IRS disqualification is minimal because third-party Trustees and Custodians maintain possession of the retirement assets and satisfy all of the IRS-mandated requirements.

Passbook IRAs for Precious metals have an elevated risk of being disqualified because the investor takes over the role of both Trustee and Custodian with a self-created LLC. Any procedural misstep with the LLC or the handling of the IRA could give the IRS grounds for disqualification.

Grab your FREE 2022 Gold IRA Kit.

Income-producing real estate

Rental real estate can be a lucrative Investment vehicle when purchased and managed within an IRS-approved retirement savings plan. Investors can reap the historic benefits of residential income properties and use tax-advantaged savings to do so.

While the benefits of real estate investing are certainly worth pursuing, the risk of violating IRS guidelines is elevated with this asset class.

The key rule to understand is that beneficiaries of the IRA and close family members (“disqualified persons”) are not allowed to live in or work on the property. All transactions involving the IRA-owned real estate must be performed at arms-length.

The IRS specifically prohibits disqualified persons from making any repairs or improvements on the property because this “sweat equity” adds value to the property that would otherwise have to be paid for (look into IRS guidelines on “self-dealing” for more details on this obscure rule).

For example, if a tenant calls on Sunday morning and says that water is standing in all of the property’s sinks and bathtubs, the IRS prohibits anyone involved with the IRA from making repairs. The simple act of using a $6 plunger on a stopped-up drain could cause the entire IRA to be disqualified by the IRS.

Because of this restriction on disqualified persons it is likely that the cost to maintain IRA-owned real estate will be higher than it would be for identical property owned outside a tax-advantaged vehicle.

In an ideal retirement Portfolio any IRA-owned real estate would be fully managed by a property management company.

Although the management service increases the cost of owning the property, it makes it clear to the IRS that the “hands-off” rule is being followed in regards to the Investment. It also ensures that the tenants will be calling someone else on Sunday morning.

Self-directed IRA Real Estate

Let’s consider some real estate investing basics that change when we use tax-advantaged funds.

Purchase

The mechanics of purchasing rental real estate are identical whether we are using a SDIRA, a mortgage loan, cash, or some combination of those funds.

We first find an appropriate property to invest in, put the property into escrow, perform our due diligence on the property, and then provide the funds needed to close escrow.

The IRA wires funds into the escrow account and subsequently becomes the outright (or proportional) owner of the property.

The IRS is quite flexible about the funds used to close escrow. It is OK to combine multiple IRAs, use non-IRA funds, or even use funds contributed by disqualified persons. Mortgages are acceptable as well but they must be non-recourse loans (explained below).

Who owns the property

Ownership of the property is proportionately divided based on the funds used to close escrow. If the IRA purchased the property outright then the IRA would have 100% ownership.

In a more complex situation property ownership might look something like this:

  • Investor owns 60% with their IRA
  • Investor’s spouse owns 30% with their IRA
  • Investors’ parents own 10% with non-tax-advantaged funds

Mortgage loans

Mortgages can be used to purchase real estate within an IRA but the loans have to be non-recourse.

With a non-recourse loan the lender can only take action against the asset that underlies the loan. The lender has zero recourse against any other asset in the IRA or against the investor as an individual.

Because the lender has limited recourse they will require a 40 to 50% down payment on the property. They are also likely to charge higher origination fees and a higher interest rate than would be the case with a recourse mortgage.

Using a mortgage inside an IRA creates taxable income for the IRA according to the IRS (Section 514 of the IRC). This tax must be paid by the IRA and obviously it represents an expense that will reduce the IRA’s overall returns.

Management

As discussed above, there is a risk of having our IRA disqualified by the IRS if we try to take on the role of landlord and handyman for the IRA-owned property.

Ideally we will turn these roles over to a property management company and maintain a 100% hands-off policy towards the Investment.

Property management and maintenance expenses will be paid by the IRA in proportion to the IRA’s ownership.

Tax bennies

Rental income from the property accrues within the IRA in a tax-advantaged manner.

These funds can be used to acquire additional property or the investor could receive the rental income as a distribution from the IRA (after age 59 ½).

Property flippers might find Self-directed IRAs for real estate particularly valuable because capital gains from a sale are not taxed in the year of the sale. Instead, the gains are either tax-exempt in a Roth IRA or tax-deferred in a Traditional IRA. In either case, 100% of the profit from the flip is available for the next property purchase. 

Real estate IRA companies

There are a limited number of real estate IRA companies to choose from. You can start your comparison shopping with the companies below and then look for competitors.

Check out the services each company offers and the fees they charge.

Take advantage of any educational material they provide and request a free information kit or consultation if you want to learn more.

  • The Entrust Group
  • STRATA Trust Company
  • AltoIRA

How does a Gold IRA work

Gold IRA

A Self-directed IRA where a third-party Custodian holds physical Precious metals on the behalf of the investor. Also known as "Silver IRAs" and "Precious metals IRAs".

These simple steps allow us to open a Precious metals IRA:

  • Open an account with a Gold IRA company
  • Designate whether the account is for a Roth or Traditional IRA
  • Fund the account by rolling-over existing retirement funds or by contributing after-tax funds
  • Select specific Bullion products to be held in the IRA
  • Designate a Custodian for storage of the physical metal
  • Authorize purchase of the metal

Once the Gold IRA is setup there is nothing to do until it is time to take distributions after age 59 ½. At that point we can convert the Precious metals back into cash or, if we don’t need income, have the Custodian mail us the physical metal.

The ability to take distributions as physical metal allows investors to build a Portfolio of physical Gold and Silver inside their tax-advantaged accounts and then take personal possession of that metal in retirement.

The metal can then be sold as needed for income or gifted as desired (following all applicable IRS guidelines, of course).

Protect your retirement savings and do it 100% tax & penalty free.

Click the link below to grab your FREE 2022 Gold IRA Kit which has helped thousands of Americans just like you.

Self-directed IRA fees

All IRAs involve setup fees and annual management fees whether they are SDIRAs or not. Management companies charge fees for the products they offer and IRAs are no different.

Real estate and Precious metals IRAs add another fee to cover transaction costs, whether the transaction is a purchase or a sale.

Gold IRAs

Precious metals IRAs are subject to more fees than other types of IRAs because someone (the Custodian) has to store physical metal in an IRS-approved facility.

In addition to the management and transaction fees for the IRA, there is a storage fee for the metal.

Real estate IRAs

Income-producing real estate requires management and maintenance. Those expenses can be thought of as a Self-directed IRA fee when we are doing our retirement planning.

We will pay this property management fee to a management company while the IRA management fee and transaction fees are paid to the IRA Trustee.

Self-directed IRA companies

In the table below we provide several candidate SDIRA companies for Precious metals.

All of these companies have knowledgeable representatives who can answer your specific questions.

Fidelity

No proof or special edition Coins offered

BBB rating:

Years in business: 

Minimum Investment:

C-

76

$1,000

Although Fidelity has a low BBB rating, the company has a very low minimum Investment level which makes it easy to start and add to a Gold IRA. Fidelity is also very conservative in its approach to Precious metals, warning investors about the volatility and risk of this asset class. What we like best about Fidelity is that the company does not sell proof or special edition Coins so there is zero risk of investors purchasing these overpriced products.

Birch Gold Group

Extensive educational resources

BBB rating:

Years in business: 

Minimum Investment:

A+

19

$10,000

Birch Gold Group has extensive educational resources on their website which indicates that the company is serious about educating Precious metals investors, not just pushing them into a Gold IRA. One of the unique resources is a Portfolio calculator that shows you how the traditional 60/40 Portfolio of Stocks and Bonds performs when it has a small allocation towards Gold. Birch waives first year fees for investors depositing $50,000 or more.

Goldco

Excellent Customer Support

BBB rating:

Years in business: 

Minimum Investment:

A+

16

$25,000

Goldco has been helping investors move their tax-advantaged retirement savings into the security of Precious metals for 16 years. More than 1,000 of those customers have given the company 5-star reviews and Goldco is also highly rated by BBB, Business Consumer Alliance, and TrustPilot. Goldco provides educational resources on their website and has more in-depth materials available via email after you speak with one of their Precious metals specialists. When new clients invest $100,000 or more with Goldco they will receive $10,00 or more in free Silver.

Regal Assets

Precious metals & Crypto in the same IRA

BBB rating:

Years in business: 

Minimum Investment:

B+

12

$10,000

With a Regal Assets IRA investors can hold both Precious metals and Crypto in the same IRA. Active Crypto investors can trade the most popular Digital currencies and Stablecoins using tax-advantaged savings and then park their profits in physical Precious metals. Regal has basic educational resources on their website and provides an in-depth investor kit and DVD after you contact them.

Augusta Precious Metals

Exceptional focus on education

BBB rating:

Years in business: 

Minimum Investment:

A+

10

$50,000

Augusta Precious Metals offers more educational resources on their website than any other Gold IRA company. Current topics affecting your retirement savings are covered in the regularly updated video library and you will also find a series of videos on basic economics. Augusta's blog regularly publishes articles addressing current economic matters. The Inflation and Retirement calculator shows you how Inflation will affect your retirement lifestyle. Investors with $100,000 or more to invest can schedule a 15-minute 1-on-1 teleconference with Devlyn Steele, Augusta's director of education. Augusta Precious Metals is clearly committed to helping you understand Precious metals and how you can benefit from a Gold IRA Investment.

Patriot Gold Group

Fast IRA setup

BBB rating:

Years in business: 

Minimum Investment:

A+

6

$15,000

Patriot Gold Group is one of the newer Gold IRA companies but they are highly rated by BBB and TrustPilot. Patriot Gold differentiates itself from other Gold IRA companies in two ways. First, they will setup your Gold IRA within 24 hours so you can quickly initiate the rollover or transfer process with your existing Retirement account. Second, they offer a 'no fees for life'  IRA for investors with $250,000 or more to invest.

Noble Gold

Excellent educational materials

BBB rating:

Years in business: 

Minimum Investment:

A+

5

$2,000

Noble Gold is a relatively new Gold IRA company but they offer a wealth of educational material on their website and they are highly rated by BBB, Business Consumer Alliance, and Trustlink. With a low minimum Investment level Noble Gold makes it easy for anyone to add Precious metals to their retirement savings plan. Texans will appreciate the Noble Gold IRA because they can store their Precious metals in either Dallas or Delaware.

Grab your FREE 2022 Gold IRA Kit which has helped thousands of Americans just like you.

Refer to the Gold IRA page on the website for tips on selecting the best Gold IRA to meet your specific Investment objectives.

Conclusions

In this brief article we focused on two types of self directed retirement plans, one for Precious metals and the other for income-producing residential real estate.

These alternative Investments allow for diversification of a traditional retirement Portfolio without causing any tax consequences (when done correctly.)

For more information about owning Silver and Gold inside your IRA, grab your copy of the free Gold Investment Kit.

To learn more about maximizing the tax benefits of owning real estate visit the IRS Real Estate Tax Center.

Browse the website to learn more about tax-advantaged investing, Self-directed IRAs, and the Precious metals.

Bryan V Post is a California-registered Investment Advisor Representative specializing in the Precious metals.

He is the founder and CEO of Satori Traders LLC, a California-registered Investment Advisor.


Bryan has worn numerous hats during his life:

Engineer, Portfolio manager, Precious metals Investor, Technical analyst, Proprietary trader, Swing trader.

Precious metals IRA company

Fidelity

  • Founded: 1946
  • BBB rating: C-
  • Proof Coins: No
  • Minimum Investment: $1,000

Patriot Gold Group

  • Founded: 1990
  • BBB rating: A+
  • Proof Coins: Yes
  • Minimum Investment: $15,000

Birch Gold

  • Founded: 2003
  • BBB rating: A+
  • Proof Coins: Yes
  • Minimum Investment: $10,000

Goldco

  • Founded: 2006
  • BBB rating: A+
  • Proof Coins: Yes
  • Minimum Investment: $25,000

Regal Assets

  • Founded: 2010
  • BBB rating: unrated
  • Proof Coins: Yes
  • Minimum Investment: $10,000

Noble Gold

  • Founded: 2017
  • BBB rating: A-
  • Proof Coins: Yes
  • Minimum Investment: $2,000
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