Entrust New Direction Blog

The self-directed IRA is a wonderful vehicle for diversifying IRA or other qualified funds into ‘alternative’ assets like real estate, private placements, notes, precious metals, and more. The whole structure of a truly self-directed plan is different than what most people are accustomed to with their current bank or brokerage company. Most people are more familiar with working with an advisor or appointed financial representative. With that structure, the advisor/representative helps the client determine what the IRA is going to invest in and when. With a truly self-directed IRA there is no advisor or representative. You take on that responsibility as the ‘self’ in the self-directed IRA.

You are the one in control of everything that happens with your IRA. We need your initiative to do anything with the account. We can’t (and won’t) do anything without your direct, written authorization. We are here and accessible to do whatever you need us to do. However, in order to ensure the full security of your account, we do not take any action except upon receiving your direct written request.

As a general rule, if you are a client and you are thinking to yourself: “I wonder who is doing such and such?”—the answer is probably YOU! You decide what your IRA is going to invest in. You put together the details of the investment. You provide us with the investment direction forms, and you approve everything before we process it.

The great thing about working with a local company like Entrust New Direction is that we are available when you need to reach someone. We always answer the phone when you call, and you are able speak with a representative in the appropriate department to help with whatever you need.  Additionally we have a wealth of really good information on our website.

I am a visual person and I like analogies, so here’s an analogy for the self-directed IRA structure: Think of the IRA as a bus. You are the driver of the bus and Entrust New Direction serves as the wheels and sometimes the brakes. A bus without wheels is not going anywhere (you need a self-directed IRA administrator to provide recordkeeping and administration for the IRA), and a bus without brakes is extremely dangerous. Thus, our two roles are essential to the IRA. We will move when you direct the steering wheel of the bus in a particular direction and hit the gas. If you are clearly going the wrong way (i.e. towards a prohibited transaction) we will stop you. 

If you are not an Entrust New Direction IRA client and are working with another self-directed IRA company that doesn’t utilize their brakes, you may want to ‘trade in’ for a better bus. If you find a company that blindly does whatever you ask, without requesting documents or asking basic questions, you may want to separate yourself from that company. Unfortunately there are companies in our industry that operate without ever utilizing their brake system.

It is important to note that, at the end of the day, you are responsible for your self-directed IRA. Entrust does not approve or endorse any investments. We are capable of telling you what the rules are, however when it comes down to it, it’s your IRA and you are responsible for it. We’ve been doing this a long time and we are very knowledgeable of the rules for self-directed IRAs.

We can’t give advice or ‘approve’ your investments, however, if you are forthcoming and honest with all the information and you have a general question about whether something that you are looking to do is a prohibited transaction or not, we can generally answer your questions (or at least direct you to the appropriate section of the Code to research the issue). If we happen to see that the investment you are trying to make is clearly a prohibited transaction, then we won’t fund that transaction (i.e. we will use our brakes). We don’t want our clients to get into trouble with the IRS, that’s not good for anyone. We don’t want ‘bad assets’ in our system, and we certainly don’t want our clients getting into trouble and telling their friends what a terrible experience they had with one of those ‘self-directed IRAs.’

Our goal is to provide our self-directed IRA clients with the broadest spectrum of investment options while at the same time helping them stay out of trouble and maintain their IRA’s tax deferred status. If you know what you want to do with your IRA, and need an administrator that will allow for the flexibility to do it, give us a call. We would love to work with you. 

Photo Courtesy of Bill Ward.

Self-directed IRA holders have discovered gold - in the trash. Some of our clients recently found out how to invest in gold while also being environmentally responsible.  There may be more options for recycled gold, but the one that was brought to our attention, Ohio Precious Metals  extracts the metals from electronics, jewelry, the banking industry (not sure why the banking industry would give up the goods), photographic equipment and other industries.  Gold IRA and Gold Health Savings Account (HSA) owners have been buying recycled gold bars and coins.   If I was allowed to ever have any opinion on an investment, which I'm not, I'd think it was pretty cool.

You probably already know that some other self-directed IRA custodians choose the gold dealer for the IRA holder, but our clients use their gold IRA or gold 401(k) or gold HSA to buy gold (or silver or platinum or uranium) from any dealer. And of course, our clients can pick anywhere to store their gold (as long as they're an authorized storage facility). Again, I'll repeat: We never give our clients investment advice. We never tell anyone where to buy or where to store their gold. 

As long as I'm repeating myself, let me say again that when it comes to a gold ira or a silver ira or any other precious metal ira, you're only investing in the metal itself, not the pretty coin.  No matter what image is on the coin.  No matter what kind of bar.  Gold IRAs, Silver IRAs, etc are only investing in the metal - never collectible coins.

Form more information, register for the 1 hour Recycled Bullion IRA webinar, first available June 23, 2010 6:00pm MDT.

Photo courtesy of bogenfreund.

And in financial news from earlier this merry merry month of May, Fox news reported:

"A computerized selloff possibly caused by a simple typographical error triggered one of the most turbulent days in Wall Street history Thursday and sent the Dow Jones industrials to a loss of almost 1,000 points, nearly a tenth of their value, in less than half an hour. It was the biggest drop ever during a trading day."

The biggest drop ever thanks to one fat finger.

You may consider this old news (2 weeks ago is old news now), but the stock market is still where 98% of America's retirement dollars precariously reside, so until either the amount of cash or the amount of precariousness changes, this news won't get old.

Some dude fat-fingered my life savings away.

Let's backtrack for a moment. Fat-finger: When a typist mistakenly types a wrong or additional keystroke, thereby taking down the world's financial markets.

Okay, that last part was my own extrapolation. Anyone who works or plays on computers knows how easy fat-fingering is. Whether your fingers are, in reality, quite lithe, is irrelevant. The fact is, mistakes happen. Fat-fingering happens.

It happens so often, we have internet memes and cliches based on fat-fingering. Who hasn't typed teh when they meant to type the?

But when your retirement money is self-directed, YOU can catch the fat-fingering on a contract or other document. YOU decide whether to spend YOUR retirement money on whatever YOU choose in whatever amount YOU choose. YOU tell us if, when, and how you want to invest in your real estate IRA investment or your HSA gold investment or your whatever alternative investment. We do what YOU tell us. You are not dependent on a stranger a thousand miles away who doesn't care (or know) as much as you do. You only rely on YOURSELF.

Even though this specific day's disastrous plunge was supposedly not a fat finger, according to the SEC, this is a realistic, even likely possibility. People make mistakes, and in this era of huge numbers and speed-of-light transactions, wouldn't you rather make your own mistakes, with pen and paper? I know I would.

This most recent stock market plunge is yet another reason why I'm glad I have my retirement money in a real estate IRA investment and a gold investment. Find out how to move your retirement money to a self-directed retirement account and start making your own success (and your own mistakes). And please, if friends or family are still under the shadow of a potential fat-finger disaster, let them know they have another option.

We find that many of our event attendees know very little about self-directed IRAs before they find Entrust New Direction and start asking questions. As someone that teaches a lot of these classes, I often have the pleasure of seeing the excitement our prospective investors have when they learn about all the neat things you can do through a self-directed plan.

Several of our competitors have picked up on the fact that the ‘idea' of self-directed IRAs can attract a crowd. A couple of these companies have recently promoted investor boot camps or destination weekend workshops for which they charge a sizeable fee. The problem is the information they provide is the same information that we provide for free!

Many of these companies will get you started by answering your basic questions for free but then tell you that you need the boot camp to take your knowledge to the next level. There is no hidden or secret information in respect to self-directed IRAs. The answers are what the answers are....the issue is whether the company you are working with will give them to you. Admittedly sometimes things do get complicated with this industry, and questions get a bit more in-depth, but that is all the more reason to work with a company that you can call for free to get answers to those questions.

Another frustrating thing that we've found is some of these companies, even after you've paid to attend their event, won't give you the information you seek. Instead they will try to sell you a book or a CD or a ticket to another event! How frustrating is that? You take the time, energy and money to get yourself to an event to learn about self-directed IRAs, and you walk away with nothing but an opportunity to invest more time, energy and money.

Just to be clear, I think generally speaking, investment bootcamps can be great. I've been to several and I always walk away with good information and new contacts. It is important, however, that you don't pay for a bootcamp when you could get the same information free somewhere else. The bootcamps that I've attended and enjoyed "sold" information that I otherwise couldn't get my hands on... and thus they were worth it.

It should be noted as well that just because you pay for an event doesn't mean the event is better. We will take the Pepsi Challenge with any self-directed IRA company when it comes to educating investors and providing in-depth information. And we will do it without charging and without forcing you to fly to Florida for the weekend boot camp. Our endgame is the self-directed IRA client that sets up an account and purchases an asset like real estate, precious metals, hard money loans, or even publicly-held stocks. Everything that we do leading up to that point is just part of the business.

We realize that there is a gap between what people currently know and understand about self-directed IRAs and what they need to know and understand to be comfortable enough to open an account and move forward. We try to fill that gap with free education and employees on staff that are available to answer your questions.

I should mention that I am not opposed to a company selling their product and making a buck. Good for them. Yea Capitalism! But for you, the individual that wants to learn about self-directed IRAs, do your homework up front and you can probably save a few bucks and get things started on the right foot. If you have questions, call your local experts here at Entrust New Direction IRA, Inc. We are here to help.

Image courtesy of Tobyotter

We have many prospective clients who call to ask about a ‘checkbook control
IRA-LLC'. When these people call, we generally spend quite a bit of time with them explaining what a self-directed IRA is and what a ‘checkbook control or single member IRA-LLC' is -- because there is a difference. If you want to invest in alternative assets like real estate, private stock, notes, gold, etc - you don't need an LLC. Some of our clients do elect to invest their IRA into a LLC. However, the vast majority of our clients hold their IRA investments directly in their IRA.

There are many companies which push the LLC structure; some will even go so far as to say you need an LLC. The fact is, your IRA is fully capable of holding alternative assets directly without the addition of an entity like an LLC. If a company tells you that you need the LLC, chances are that company is making money from some aspect of the sale of the single-member LLC. The structure is known by various names - the Checkbook Control IRA, the single-member LLC, the IRA-LLC - but they're all the same structure.

1) The IRA-LLC may not even be legal.

Many companies will try to convince the investor that an LLC makes investing simpler and easier. We've found that in some cases, the LLC involvement actually complicates matters. It is still unclear if it is even permissible to own an LLC with your IRA AND control that LLC personally (as the manager of the LLC).

There have been court cases and private rulings that somewhat cover the issue of funding a new entity with an IRA. However, none of these cases clarified what (if anything) the IRA holder can do as manager of the IRA-owned LLC.  For this reason, self-directed IRA companies require an independent attorney opinion letter specifically stating that this arrangement is not a prohibited transaction before they will fund the investment. The issue is a grey area at best.

We at Entrust New Direction IRA, Inc are not advocates of the IRA-owned single-member LLC structure, and won't be until the Department of Labor or the IRS come out and specifically state that the structure is permissible. Like I said it is grey... and we don't like to work in grey areas.

2) Checkbook Control IRA Costs more money to open.

And then there is an issue with costs. I've heard the argument that our IRA administration fee is too expensive and that the SMLLC structure somehow saves the clients money. Let's examine the details. Our annual administration fee is $250 per asset, per year. Most companies that push the ‘checkbook control IRA-LLC' charge a sizable up-front fee to open the LLC. These fees can be anywhere from $2,500-$5,000, before any investment is made.

Let's take the low end of the LLC startup costs - $2500. That means without an LLC, your IRA can purchase 10 different assets before you equal just opening the LLC.

3) More difficult to find a custodian.

It is important to note that even with a SMLLC, the client still needs a self-directed IRA company to provide custodianship of the IRA that holds the LLC. We've found recently that fewer and fewer companies are willing to provide custodianship to IRA LLCs. The ones that are still willing to hold them are charging higher fees because these investments are considered ‘high risk' investments and the banks don't like holding assets that don't have clearly established values.

4)Annual Valuation can be expensive and annoying.

That brings us to another huge issue...valuing SMLLC investment. The custodial bank that holds your IRA is responsible for getting an annual valuation of the assets your self-directed IRA holds. We've found that banks are requiring more and more information from clients; particularly clients that have single member LLCs in their IRA. We will elaborate more on this issue in a future blog so stay tuned (hint: you are probably going to have to pay someone to appraise the LLC every year).

5)You might as well become a CPA.

If you elect to structure your investments through a SMLLC then you (as the manager) are 100% responsible for making sure every aspect of the company is handled appropriately. Don't underestimate the responsibilities that come with managing a company (particularly when you consider the company is owned by a tax-deferred or tax-free IRA). It is extremely important that you keep the IRA/LLC assets separate from your personal assets. You must understand that the rules which apply to the IRA also apply to the LLC.

A violation of the prohibited transaction rules can result in huge penalties to your IRA, or a complete distribution with the associated tax hit.  A self-directed IRA client working directly with Entrust New Direction IRA, Inc (no LLC involved) has the benefit of working with our asset acquisitions department when making investments. We see thousands of transactions a year and can assist in explaining what the IRS guidelines are for self-directed IRA investing.

The bottom line:

If you are an expert in self-directed IRAs AND you know how to manage the recordkeeping for a business AND are capable of keeping IRA/LLC assets separate from personal assets AND you've talked to your attorney and they are willing to provide an opinion letter specifically stating the entire thing is okay AND you want to pay 10X the starting costs.... then you might want to consider the ‘checkbook control IRA-LLC'. Anything short of that and you are most likely better offer working with the experts here at Entrust New Direction IRA, Inc. We've been doing this a long time and we can help you better understand the rules and protect your IRA's tax-deferred status.

Many self-directed IRA administrators have exclusive arrangement set up for storage of their clients’ IRA-owned precious metals.  In the event that you want move your IRA-owned metals to a new precious metals storage depository, you will most likely need to find an IRA administrator that allows the use of that new depository.  Luckily there are IRA administrators that allow flexibility in choosing the precious metals storage company.  Entrust New Direction IRA, Inc (gold.newdirectionira.com) allows their clients to choose where their IRA metals are stored. 

If you have metals held with another precious metals depository and you would like to move them to a different depository you will take the following steps: 

1. Set up an IRA with Entrust New Direction IRA Inc. All forms and information can be found at: gold.newdirectionira.com
   
   
2. Submit IRA transfer forms to Entrust New Direction. The IRA transfer forms can be downloaded from gold.newdirectionira.com. On the transfer forms you will indicate that you are performing an ‘in kind' IRA to IRA transfer (in kind means you are moving the metals without selling them). Along with the IRA transfer forms it is a good idea to include a letter to the current IRA administrator/depository explaining what you are doing and authorizing the movement of the metals.
   
   
3. Once Entrust New Direction IRA receives your transfer request they will forward the request to your current IRA administrator with delivery instructions and a packing slip. Your current IRA administrator will coordinate with their depository and instruct them to ship the metals to the new depository. Additionally, the IRA administrator will remove the assets from their records and show them as transferred out to your IRA with Entrust New Direction IRA, Inc.
   
   Note: if both depositories are in Wilmington DE then you can instruct the current custodian to authorize the depository to release the metals for personal pick-up by a representative of the new depository.
   
   Note: it is also a good idea to get a medallion signature guarantee on the IRA transfer forms before mailing them to Entrust. A medallion signature is similar to a notary but stronger. It is a guarantee that your signature is genuine. You can generally obtain a guarantee from a bank officer at your local bank. The guarantee is not always required; however, some IRA administrators require it before they will honor the transfer request.
   
   
4. Prior to the arrival of the metals you should sign the account agreement for the new depository and submit that to Entrust New Direction IRA Inc. The new depository should notify Entrust New Direction and you when the metals are received.
   
   
5. Entrust New Direction will post the assets to your IRA.

Like most Americans, Juan did his best.  He worked 50 hours a week, took his kids fishing in the summer and sledding in the winter, occasionally fit in some golf games with his pals.  Every day, Juan tried to be the best dad, best husband, best friend he could be.  Juan also wanted to provide for himself and his family as well as possible, for now and the future.   So Juan contributed to his 401(k).  He figured as long as they matched 3%, he should figure a way to get that free retirement money, even if it meant a little less income right now.  

Then the stock market sunk and his 401(k) dropped 40%.

Then Juan was laid off.

Talk about a flying drop kick to the stomach. 

While surfing the web, ostensibly looking for a new job, Juan ran across a press release targeting the newly unemployed.   "What? I can invest the retirement money however I want?  No way!  I can't believe it!"  Since Juan was screaming in the empty basement, his wife ran downstairs to make sure the idleness of unemployment wasn't atrophying his brains.

When Juan explained about DIY retirement investing, and the discount, Juan's wife, Jenny immediately thought it was a scam.  "I don't think so.  Why haven't we ever heard about this?  The government is going to let regular people decide what to do with their retirement money?  There must be a catch." 

Still, Jenny had a small hope that this self-directed IRA investing was true, because she knew exactly where to invest some of the money - in her friend's new start-up kitchen gadget company.

Juan continued researching and discovered that there is an entire industry of self-directed IRA custodians and administrators, and one was located right in town!  Juan and Jenny happily transferred the funds from their 401(k) into a new self-directed Roth IRA.  Juan and Jenny took the buy direction letter home, and Jenny called her friend the kitchen gadget start-up company CEO.

Her friend the CEO was so excited, she knew Jenny loved the idea.  But then she  remembered the words of her start-up lawyer, "Accredited investors only." 

"Um, Jenny, are you an accredited investor" the CEO asked, knowing the answer.

Jenny's investment dream was smashed.

Jenny and Juan's IRA was not an accredited investor.

Juan and Jenny were able to find some other investments - they put some money in real estate, some in gold and some in CDs, but Jenny watched her friend's gadget company double, triple and quadruple in size.

Has this happened to you?  Maybe you know of a great investment opportunity but you don't have the requirements of an accredited investor.  Questions?  Watch this blog for more information on accreditation and discussions and what the little person can do.  

Kick photo courtesy of mighty mighty bigmac.

Bottles photo courtesy of shkumbin.

Locavore, the Oxford American Dictionary word of the year, 2007, and now in Webster's Dictionary, is defined as "one who eats foods grown locally whenever possible."  You, dear self-directed IRA holder, could become a locavestor, i.e. "one who invests retirement funds locally whenever possible".

Of course, a locavore's ideal location is amongst agriculture, while the locavestor would have more options in an urban evironment, but even New York City has farmer's markets, and even Idaho has investment opportunities.

Some ideas for locavesting:

1) Loan money locally                                                                           Your IRA can lend money to your church, your kid's soccer coach, your next-door neighbor.  Many people are paying 15-30% or more for credit card debt.  Your IRA could swoop in, earn 10% interest and save someone you know thousands of dollars.  Don't know anyone in need?  You could put an ad in the local paper.  Plus, the money your lender saves will likely be spent locally, further strengthening your town or city.

2) Buy shares in a local private company.                                                            

While this may not be the best time to start a company, many people who were laid off are doing just that.  They need start-up cash, and your IRA could contribute now, and look forward to a bug payout later.   There are likely local established companies which aren't ready to go public, and they may be looking for a cash infusion to help them along until the economy steadies.  Your IRA could buy into the next Microsoft or McDonald's, before they grow gargantuan. 

3) Buy a foreclosed home in your neighborhood.

Your IRA can vastly improve the neighborhood if you buy a foreclosed home and rent it.  Your IRA gets fat with rental income, and the neighborhood's home values improve.  Or if you don't want to deal with renters, your IRA could buy and hold the home, until the local real estate market improves. 

4)Buy the farm.                                                                                       To combine the best of eating and investing locally, you could find a small agricultural operation and your IRA could become a partner.  Not only could your IRA grow like the rutabagas, your retirement investment could contribute to the health of your community, literally.

If you see my new bumper sticker: "Think Globally, Invest Locally", please wave.  I'll wave back. 

It's not news that banks these days are about as popular as a thundercloud at a solar car race. And why should banks be popular now (or ever)? The one good thing banks ever did for the regular Joe and Jolene was loan money. When you wanted a new car but couldn't afford it, or a bigger barn for your dairy cattle, or a new addition for the new addition in the family, or, these days, a home of your own at all, detached or not - the bank lent you the money, with interest. I always thought that this was how banks made their money. Boy was I wrong.

How Banks Make (Made) Money

Sure, banks may take some interest money in, but their major source of revenue is investment. You've heard the adage, "It takes money to make money". Well, banks had money, all right - our money. And they made money on all sorts of investments that may have been listed grade A, but clearly were grade F or G. In meat quality grading terms, you wouldn't feed that to the racoons (unless you really don't like racoons).

The Credit Snipe

Now, when banks could be making interest money on business, home and car loans, they're too scared to provide credit. This is where you and your self-directed IRA fly into the scene, your cape waving in the wind, a big blue B on your chest.

Your self-directed IRA can save the day! Three scenarios where your retirement fund can be a better bank.

1)After a close loss, the first baseman from your softball team confides that he's paying 15% interest on his Giganto TV loan. Happily, you confide in him that you can pay off his loan and lower his payments. Your IRA will earn 10% interest tax-deferred or tax-free.

2)Your next door neighbor was trying to get ahead of the game with fix 'n' flips, but his last fixer-upper didn't flip. He tells you that he doesn't want to foreclose and he can't rent it for as much as he needs. What he needs is a bridge loan from your IRA, just until the housing market picks up a bit. He's happy to pay less than his current ballon loan, and you're happy that your IRA will earn 8% returns.

3) The sweet older lady who owns your neighborhood craft shop confides in you that The Kraft Nook may not be providing knitting needles and painted pine cones for long. Why? Her business relies on monthly loans so her shelves can be full of popular hobby helpers, but not brimming with the flourescent orange yarn that nobody wants. Your IRA can save the day.

Think about who you know and what they're paying interest on.  Most likely, you know someone who needs your IRA to be a better bank. 

Learn more by registering for these free webinars, Learn the Secrets the Bank Doesn't Want You to Know From a 15 Year Veteran and Overcoming the Top 5 Fears of Private Lending.

401(k)s, developed in 1980 and popularized in the mid 80s, have been a mixed bag.  On the good, 401(k)s encouraged people to invest in their future self by saving money for retirement (and sometimes getting free matching payments from the company).  On the bad, because the 401(k) holder had little or no choice, they also encouraged holders to forget about where their money was going.  In addition, many companies (Enron is the blackest example) highly recommended investment in the company's stock, which is a great idea if you happen to work for Berkshire Hathaway.  

Of course, 401(k)s and how people think about them has changed recently with the death of the stock market.  Now, people know they don't want to invest in the stock market, but they don't know what to invest in.  We're here to help.  We never offer financial advice or take any commission on any investment - you decide what, when, why, where how much.  First step, move your 401(k) into a self-directed IRA.  Next step, decide what to invest in.  No ideas?  Take a look at some of these examples:

1) Real Estate IRA

Investing retirement money in real estate can take many forms - a rental apartment which pays your IRA monthly, a house which is held in an IRA until you decide to sell, even your dream home, which you can live in after you retire.  This real estate can even be in a foreign country, which opens your options greatly.

2)Land

Raw land can be purchased and held until the time is right to sell or build, purchased and leased for farm land or oil or cell towers - the possibilites are limited by your imagination.  As someone famous said, they're not making any more.

3)Gold and other precious metals

Your IRA can purchase gold coins, gold bars, electronic shares of gold.  Buy now, sell when the time is right, and you'll never have to worry about or pay for storage.

4)Loan

Your IRA can provide loans for friends, businesses, or non-profit associations.  If someone you know is paying 20% interest on a credit card, your IRA can loan them the money for 15%!  As long as a person is not a direct lineal decendent(or yourself), your IRA can loan them money. 

5)Private Stock

Find the next Microsoft, Apple or fill in your own successful business, and your IRA can buy some shares in them before they go public.  Nanotechnology, biotechnology, or your next door neighbor's fledgling cookie business, your IRA gets in before the world knows the true value of a start-up company.

Don't limit yourself or your future when you can take the DIY approach and direct your own retirement investment.  Ask a question or open an account.