Grassroots Moneysports: Anyone have experience with self directed retirement funds?

I know this isn't a money site, but there are lots of smart people and self employed posters here that might have some experience with this sort of thing. The DIY nature of a self directed plan seems to kind of fit the GRM mold too. So, here goes...

I need to roll over an old 401k. I'm planning on doing a Roth conversion. So the option of doing a Self-Directed Roth IRA was introduced to me awhile back and the flexibility of a self directed plan and the tax free gains of a Roth structure are a huge draw. I'd focus primarily on real estate, but might also do some hard money lending to select people. We're 32, and this represents less than 25% of our total retirement savings so I'm comfortable with a bit of risk. I've been doing a decent amount of reading and think I understand most of the basics, but I'd love to hear from you about your own experiences. Anybody tried to DIY their retirement savings with self directed plans (SDIRAs, Solo 401ks, etc)?

I have less than 10% of my total in an SD-IRA, not an SD-Roth.   I did it to buy into a start-up medical device company, so I won't know for a while whether or not it was a good move.  Its very much a buy-and-hold.

In reply to AngryCorvair :

Cool! Who are you using as a custodian? I'm assuming you get a tax document annually that lists contributions  gains/losses for the year, is that right? How are the fees with your custodians?

Custodian is Pensco.  Fees are about $150 per quarter IIRC, not sure if that's based on the balance or just their flat amount.

it was a one-time buy of a non-public equity so I can't say about contributions gains or losses.  I don't recall a tax statement, but maybe I'm doing it wrong. :-(

For an account with no transactions, perhaps you don't need tax documents. I'm hardly well versed in SDIRAs, but I'd think your custodian would provide them if they were appropriate. That's a big part of their job. 

Can you elaborate on the use of 'self directed' here?  Is this a retirement account that lets you buy/sell/trade stocks in a more flexible traditional manner vs. limited mutual funds to choose from?

More rope to hang yourself with?  :P

In reply to ProDarwin :

There are several types of self directed accounts, from IRAs to Solo 401ks for self employed individuals. My focus has been only on the IRAs. Self Directed IRAs are essentially IRAs with much more flexibility regarding investment options. With a normal TIRA or ROTH, you can choose from stocks or bonds that your brokerage offers. With a self directed account the basic structure is the same (same tax implications, same annual contribution limits, etc) but you can invest in a much broader class of assets including real estate, private firms (as AngryCorvair has done), money lending, mortgages, I've even heard of some crazy people investing in horse farms and race horses. You cannot invest in collectibles, alcohol, and a couple of other things. You have to know what is and isn't allowed.

Traditional brokerages don't offer these. You have to go through a "custodian", and the fees are typically higher than something from Vanguard, etc. Taxes can get tricky, and can definitely be troublesome for the unaware, but it seems pretty straight forward to me. Basically, there can be no co-mingling of funds between the self directed account and your personal accounts. If it's owned within an IRA, the IRA has to fund all expenses related to the asset. If the asset is jointly owned, then costs and potential gains must be split proportionally with ownership.

So, for example if you wanted to buy a rental property, you could do that through a self directed Roth IRA. You'd use IRA funds for the down payment, or to buy it outright. Your IRA owns it, not you personally. Management fees or any repairs needed must be paid for with money from the IRA. You cannot do any work yourself to the property as that's considered you paying yourself. Rent paid would be paid to the IRA (or an LLC that you've formed that the IRA invests in), and since it's a Roth account that's all untaxed. If you go to sell the property, there is no capital gains tax (because it's considered gains in a Roth account). You would pay taxes (called UBIT taxes) on whatever portion of the purchase was financed. So if you bought a $100k property with $20k IRA funds and 80k mortgage and you sold it later for $120k you'd make $40k untaxed, and then be taxed on the remaining 80k (UBIT). Plus your rents during time of ownership would be untaxed.

*****All of this is my understanding after several hours of googling the topic. It's a complex topic because there are so many investment options and so many ways that things can be approached. This example is worth what you paid for it. Do your own research and draw your own conclusions*****

i'm not sure how they define "collectables" but I asked a guy if you could use SD-IRA money to buy a car at Barrett Jackson and he said something along the lines of "how else do you think those berkeleys are doing it?"

AngryCorvair said:

i'm not sure how they define "collectables" but I asked a guy if you could use SD-IRA money to buy a car at Barrett Jackson and he said something along the lines of "how else do you think those berkeleys are doing it?"

I know with real estate purchased within an IRA, you can't use your investment asset personally. You can't buy a lake house to rent out via Air BnB, and use it for yourself or family on weekends with vacancy. Assets in an IRA are investments only, and cannot be utilized for pleasure/personal use. If a car were bought within an IRA, it would have to remain unused by the IRA holder. I guess with really expensive vehicles, that's totally possible, but it makes me sad to think of a car as nothing more than a sculpture bought as an investment.

I have self directed through Gold Star into a church loan fund. 3.5% per year.

In reply to JAGwinn :

I didn't know about church loan funds. That's interesting.

https://www.goldstartrust.com/Default.aspx

It is a building or construction loan to churches.