There are two frustrations endemic to working America:
- Once again being stuck at home on a Saturday night.
- Not knowing what to do with your retirement funds.
Saturday night might be an intractable problem. Retirement is slightly easier.
First let’s define the problem. You have some money put away, but the recent roller coaster ride of the stock market has you wary about betting your retirement on the next Facebook. But if not Wall Street, where else can you place your retirement funds?
One answer that is becoming increasingly popular is to rollover into a self-directed IRA. This platform will allow you to go beyond Wall Street with your retirement investing, and place your funds in real estate, private loans, or an aspiring start-up. What’s very appealing about this option is that you can choose an asset with which you already have a comfort level. Maybe you’re aware of a local property that is an absolute steal, and you know you could definitely turn a profit on it. With a self-directed IRA, that property can be turned to profit to the direct benefit of your retirement.
Here’s how it works. First you choose a company that will facilitate your self-directed IRA. Currently, there are two models of self-direction that dominate the market. The first is the Custodian model which requires you to go through a middleman custodian to execute every transaction. The other is the Checkbook Control model. This allows the investor to place investments just by writing a check. Because there’s no middleman in this model, the investor can save a lot in transaction fees and time- heavy hassles. For active real estate investing, Checkbook Control will almost always provide a more economical and easy-going process. Broad Financial is one of the leading providers of the Checkbook Control model.
After you choose a company, your facilitator will set up a specialized LLC for your IRA. Once that is finished, you’ll be able to go to any bank and open up a checking account in the name of the LLC. Voila! Now all you have to do to invest your retirement funds is write a check. Any profits are deposited back into the LLC’s checking account and thus automatically become part of your IRA’s assets.
The process is relatively straight forward. However, there are a few things you have to look out for. One of them is a set of laws known as Prohibited Transactions. In a nutshell, Prohibited Transactions limit any interaction between your IRA and you or any of your linear relatives. In simple terms, you can’t receive any benefit from your IRA until retirement age. Some common examples of Prohibited Transactions include having your IRA purchase a property that you already own, renting a property (even at a fair price) to one of your children, or having your father do rehab work on one of your IRA’s assets. For most investors the situation never arises, but there a few cases where caution is required. You should definitely ask your facilitator anytime there is a question.
Taking control of your retirement funds give you the peace of mind that the funds are being placed in sensible investments. Depending on the state (LLC setup times can vary greatly,) the whole process can usually be accomplished in about two weeks. Once you’re set up, however, you can invest as often as you wish. You’re finally in control of creating your own prosperity. (Although you probably still won’t know what to do on a Saturday night. Alas.)