How To Set Up a Self Directed IRA 

When setting up a Self Directed IRA, possessing a clear grasp of the process can make it easier and more efficient. There are a number of different kinds of Self Directed IRA platforms and each will have its own unique elements during the set-up process. Here we will outline the two most common platforms: the Custodial Self Directed IRA and the Self Directed IRA LLC with checkbook control.  

How To Set Up a Custodial Self Directed IRA 

Setting up a custodial Self Directed IRA is a simple 3 step process: 

  1. Create an account with a Self Directed IRA Custodian 
  1. Transfer funds into the new Self Directed IRA account 
  1. Instruct the IRA Custodian to invest funds into the asset of your choice 

Let’s look at each of these steps in more detail. (Please keep in mind, that Madison will guide you through every step of the process. The details may seem complicated on paper, but it’s mostly just filling out forms. The entire process is usually completed within 2-3 weeks.) 

STEP 1: CREATE AN ACCOUNT WITH A SELF DIRECTED IRA CUSTODIAN 

  • The first step to set up a Self Directed IRA is to contact a Self Directed IRA Custodian and complete their Account Application. The application will ask basic questions like “What kind of IRA are you opening?” and “How are you funding your new IRA?”  

STEP 2: TRANSFER FUNDS INTO THE SELF DIRECTED IRA 

  • There are two ways to fund a new Self directed IRA. You can make a new contribution directly or you can roll over funds from an existing retirement account. If you are transferring funds from an existing IRA, you will Complete a Transfer Authorization form instructing the Self Directed IRA Custodian to initiate the transfer. The form will then be sent to the current IRA Custodian for processing. The current Custodian will then transfer your IRA funds and they will be deposited in the self directed account. 
    If you are rolling over funds from a former employer’s plan, like a 401(k) or 403(b), you will contact your employer or current plan administrator to request rollover paperwork. They will then issue a check or wire to the new Self Directed IRA account. (Before opening a Self Directed IRA, it is important to research the rules that apply to your current 401(k). Many employers lock their employees in to a specific 401(k) plan for the duration of their employment. That means that while you are still working for that company, you may not be able to roll over your funds into a Self Directed IRA. There are a few companies that do not have this rule. Of course, if you no longer work for the company, you are free to roll over your 401(k) funds at will.)   

STEP 3: INSTRUCT THE IRA CUSTODIAN TO INVEST FUNDS INTO THE ASSET OF YOUR CHOICE 

  • Complete an Investment Authorization form instructing your Self Directed IRA Custodian to invest your IRA funds directly into your chosen asset. This form will specify the investment amount and delivery instructions.  
  • Self Directed IRA Custodians serve as passive, non-discretionary custodians and therefore cannot offer any investment or legal advice. It is recommended that investors perform due diligence before placing investments to ensure suitability. Self Directed IRA Custodians like Madison Trust Company are happy to help with any questions or concerns about the investment process. 

How To Set Up a Self Directed IRA LLC 

A Self Directed IRA LLC starts with a custodial Self Directed IRA and then adds an LLC and checkbook control to the process. Here’s how to set it up: 

  1. Open an account with a Self Directed IRA Custodian – Research Self Directed IRA custodians and then open an account with the one that fits your needs. 
  1. Rollover existing retirement funds – Fund you new Self Directed IRA by rolling over funds from an existing retirement account. You can also fund it with an initial contribution. 
  1. Set up an LLC – Your Self Directed IRA LLC facilitator will establish an LLC for your account. This is a specialized LLC that is specifically designed to conform to all relevant ERISA regulations. (Due to the complex structuring necessary for this LLC, you will usually not be able to use a pre-existing LLC that you may already own.) 
  1. Capitalization – You will instruct the Custodian to invest your retirement funds in the new LLC.  This is akin to telling your Custodian that you want to invest in a specific stock or company. It’s just that in this case the company you are investing in is your LLC.  
  1. Open a Checking Account – Go to the bank of your choice and open a checking account in the name of your LLC. This will give your IRA the ability to invest in any asset without having to go through the Custodian. Just write a check from this account, and the purchased asset automatically belongs to your IRA. 

How To Set Up a Self Directed Roth IRA 

The process is identical to setting up a Traditional Self Directed IRA. Both the custodial version and the IRA LLC can be set up as a Roth. Funding the account can either come from an initial Roth contribution, rollover from an existing Roth IRA account, or a Roth conversion. There are no additional fees or time expenditures for the Self Directed Roth IRA setup. 

Self-Directed IRA Setup Timeframe – The entire process typically takes 3 – 4 weeks from start to finish. (For those with who need quicker turnaround time, expedited service is available.) For a more detailed look at Madison Trust Company’s processing timeframe, click here

Setup Fees – Madison’s initial setup fee is $50. The annual fee utilizes a flat rate pricing model. This means that Madison Trust’s custodial fee is fixed at $90 per quarter regardless of the amount in an IRA. To compare Madison Trust’s pricing to other custodians please use the comparison calculator.   

To learn more about how to set up a Self Directed IRA please contact us at 800-721-4900 or schedule a call with an IRA Account Specialist. 

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