Self Directed IRA Rules
The rules governing a self-directed IRA are not necessarily the same as the rules governing traditionally custodied IRAs. The rules can also vary between self-directed IRAs depending on what tools are used to set them up. The most common instrument is the Limited Liability Company and there are many reasons why investors choose it. Whatever you choose, remember that your money grows faster with your scrutiny.
The rules governing IRAs are the product of federal legislation and the yearning of major financial institutions. The federal laws and your plan document are the only constraints on your IRA. In practice your plan document has the most effect on how you can invest your IRA's funds. The main reason IRAs have the reputation of being safe but restrictive is because the first generations of plan documents were written that way.
The reason investors so often form Limited Liability Companies within their IRAs is because of the extent of control they can gain over their investments. Rather than asking their IRA administrators every time they want to make an investment, and paying the attached fees, they can maintain checkbook control over their IRA investments. The avoidance of fees and the freedom of investment are the self-directed IRA, LLC's big selling points.
The Rules for Creating a Self-Directed IRA
You must first find someone who will take custody of your IRA and let you be in charge of it. (Banks and other large financial institutions usually will not.) Companies that specialize in setting up self-directed IRAs (like NAFEP) often have favorable determination letters for their products, simplifying the entire process. They should be able to answer any initial questions you may have.
Written By Scott Janko, The National Association of Financial and Estate Planning (NAFEP)
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