Introducing the Self Directed IRA Trust
Self Directed IRAs come in a variety of platforms. They range in price and functionality and each is appropriate for different situations. One of the most versatile – the Checkbook IRA – allows account holders to make investments in real time without having to go through a Custodian. Traditionally Checkbook IRAs have utilized a dedicated LLC, but now there is a new option. The Self Directed IRA Trust gives users the same transactional power as an LLC but without a lot of the high costs and regulations.
What is a Self Directed IRA Trust?
A Trust is a kind of account which holds funds or assets. There are typically three entities involved with a Trust: the grantor, the trustee, and the beneficiary. The grantor creates the Trust, the trustee holds or manages the assets, and the beneficiary is the one for whom the assets are being held. In a Self Directed IRA Trust, the IRA itself is both the grantor and beneficiary, while the IRA account holder functions as the trustee. Simply, you (the IRA account holder) can manage the funds and assets in the Trust account for the benefit of your IRA.
What are the advantages of a Self Directed IRA Trust?
As a vehicle for a Checkbook IRA, the Self Directed IRA Trust has a number of advantages over using an IRA LLC.
- Cost – An IRA Trust does not have to pay the (often hefty) annual fees associated with an LLC. It’s also easier to set-up which means a lower establishment fee. Additionally, it doesn’t have to pay the annual franchise tax that some states impose on LLCs.
- Speed – If you’re looking to jump into a specific investment (or you just prefer not to wait around,) the IRA Trust can be established in 4 business days. The typical IRA LLC takes about 2-3 weeks.
- Less Regulation – An IRA LLC has state reporting obligations and needs to set up a foreign agent when doing business in a different state. A Self Directed IRA Trust has no state reporting requirements.
- Confidentiality – Since an IRA Trust does not file with the State, there is no public record of the account holder or other pertinent details. With an IRA LLC, the account holder files Articles of Organization which subsequently become public record.
When is a Self Directed IRA Trust not the right way to go?
There are a limited number of situations where an IRA LLC might be the better choice of vehicle for a Self Directed IRA.
- If your investment strategy entails getting a non-recourse loan, this can be easier to accomplish with an LLC.
- There are a few states which are not favorable to Trust-owned real estate and securing property insurance can be difficult.
- An IRA Trust cannot be a multi-member.
- An IRA Trust does not possess the same degree of liability protection that can be found in an IRA LLC.
Truthfully, these are factors that don’t affect most investors. In the vast majority of cases, the Self Directed IRA Trust will clearly be the preferable choice of investment vehicle.
Moving forward with a Self Directed IRA Trust
As with any financial decision, the best thing to do is speak with a qualified specialist. Give us a call today and tell us what you would like to do with your retirement investing. We’ll talk it through and help you decide the best possible way to accomplish your goal.