Custodian | Jeff Nabers’s Self Directed IRA & Solo 401k Blog

The Most Elusive & Dangerous Self-Directed IRA Practice November 14, 2010

Posted by Jeff Nabers in : Business Start-Ups, Personal Enjoyment, real estate, Self Directed IRA Solo 401k , 11comments

There’s something that most “successful” Self-Directed IRA investors do that can spin them out of control and get them into trouble.

I say “successful” in quotation marks because I’m talking about the particular kind of Self-Directed IRA success that is sexy enough to be frequently written about.

What is this dirty deed that leads to massive profits and the potential implosion the very same Self-Directed IRA that got those profits?

Entrepreneurship.

Bad Entrepreneur!

Yep. Entrepreneurship is so powerful that it seems to be the source of all aggressive wealth creation. So where’s the danger?

Let me explain. Some of the most [initially] profitable Self-Directed IRA stories sounds something like this…

Joe, a Self-Directed IRA investor, knows how to work real estate deals into profits. So he buys and sells real estate in his Self-Directed IRA. Sometimes he involves bank financing. Sometimes he involves private financing and partnering.

But one thing is for sure: Once Joe purchases a property, the work has just begun. He has a system. He only buys properties that meet a certain criteria. After the closing, he usually has repairs and/or remodeling work done.

And his system works. He’ll put $30k or $40k of his Self-Directed IRA money into a deal and get $80k to $100k out, often less than a year or two later.

First, applaud Joe for (more…)

Get 5 Steps to Freedom Book on Kindle Now! January 19, 2010

Posted by Jeff Nabers in : Money, Precious Metals, real estate, Self Directed IRA Solo 401k , 4comments

5stf_kindle

Finally! I’ve received many requests to make the book available in Kindle format. We started working on that about 6 months ago, and as of just a few days ago, it’s available.

Go here to purchase 5 Steps To Freedom on Kindle.

The book is more than financial education… it’s an action plan. And it’s more than only an action plan… it’s a proven action plan backed by over a dozen cases studies. It shows you true stories of friends and clients who have found massive success in their self-directed wealth management.

You’ll find that most (more…)

Tax Return for UBIT – Does your retirement plan own leveraged real estate or an active business? April 15, 2009

Posted by Jeff Nabers in : Self Directed IRA Solo 401k , add a comment

Just a quick, last-minute reminder…

If your IRA owns mortgage-leveraged real estate, you owe UBIT.
If your IRA or 401(k) owns an active business structured as a pass through entity (such as an LLC or partnership), you owe UBIT.
If your 401(k) owns mortgage-leveraged real estate AND the mortgage is a “seller carry”, you owe UBIT.

UBIT, or Unrelated Business Income Tax, applies to tax exempt organizations including retirement plans. To pay UBIT, Form 990-T must be filed with the IRS. If this is all news to you, once you are done scolding yourself, you may want to file for an extension using Form 8868.

Warning: Don't let administrators act as custodian – Part 3 January 15, 2009

Posted by Jeff Nabers in : Self Directed IRA Solo 401k , 2comments

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*** This is Part 3 of a series about the dangers of letting an administrator act as custodian. Make sure you read Part 1 and Part 2 first to make sense of this post. ***

The illegitimate custodian test

Ask “Who should the check be payable to for the rollover contribution or transfer?”

Ask “If my IRA buys real estate and rents it out, to whom should the tenant make the rent checks payable?”

Ask “If my IRA owns real estate that needs repairs, who issues and signs the check to the repairmen?”

These questions will tell you who is actually serving as custodian. For instance, if you live in TX and unregulated company Dotrust is marketing its self-directed IRA services to you, the answer to one or more of the questions above will probably be something like Dotrust of Texas, Inc. If this is the case, ask to see its bank or trust charter – if it is an illegitimate custodian it won’t have one, and it will insist that another bank is technically the custodian. It not only matters who’s the custodian on the paperwork is; but it also matters who is acting as custodian as uncovered by the answers to the 3 questions above.

Why would somebody operate an illegitimate custodian company?

First of all, if it’s a franchise operation, the franchisee might not even know that he or she is part of an illegitimate IRA custodian scheme. Secondly, there can be a lot of profit to be made in an illegitimate IRA custodian scheme. The company can earn interest off of your IRA funds, and it may pass only some (or even none) of that interest earned on to you. It may also be able to earn higher interest rates when it collectively has custody of hundreds of millions of dollars in funds.

Surprised?

You may be thinking “This sounds like a company I’ve run into. But it promotes and and advertises and has been in the business for decades… it can’t be illegitimate, can it????”

Many high-profile schemes have been shut down. The private annuity trust scheme was promoted for over a decade before the IRS shut it down. Additionally, being in business for decades doesn’t guarantee that business is legitimate. Look at Bernie Madoff.

Madoff may be a harsh comparison. Those involved in an illegitimate IRA custodian scheme may not be knowingly harming anyone. They may even be attorneys or CPAs. They may believe they’ve merely created a loophole for themselves with the “stepped transaction” arrangement. They may be good people. But the bottom line is that there are significant risks you take in using their services, and you will pay the consequences if uncovered by the authorities. In my opinion, it never makes sense to use an illegitimate custodian because there are dozens of regulated/legitimate self-directed IRA custodians out there. There should be a balance between risk and reward. There is significant risk of using an unregulated/illegitimate custodian, and it offers no unique reward that isn’t offered by other self-directed IRA custodians.

Confused? If you have a self-directed IRA or are thinking of opening one at a custodian company, perform the illegitimate custodian test as described above.