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How Do you Open a Self Directed IRA: Advanced Guide

How Do you Open a Self-Directed IRA: Advanced Guide

You’ve heard a lot about self-directed IRAs through our blog, and you know they are a great option to help you build and stabilize your retirement.

But how do you open a self-directed IRA (SDIRA)? Though the process is fairly simple, there are a few things you can do to ensure due diligence and make sure that you’re making the right decisions for your future.  

Here are four steps to help you get started.

how to open a self-directed ira

1. Research Your Investment Options

Before you just jump into any investment opportunity, preliminary research is a must. A self-directed IRA is no different. Instead, research plays a very important part in answering the question “how do I open a self-directed IRA.”

Investment diversity is a true benefit of this type of investment, but it also means you’ll need to review your asset options (e.g., real estate, precious metals, businesses, deeds, etc.).

Further, understanding which assets you’re interested in can help you complete the next step – finding the right self-directed IRA custodian. 

2. Choose The Right Self-Directed IRA Custodians

The IRS dictates that your IRA must have a custodian, and as such, there are plenty of banks, credit unions, trusts, etc. that act as custodians for IRAs and self-directed IRAs.

Choosing the right one is imperative to your short- and long-term goals. There are several factors to keep in mind, but here are three primary concerns to take into consideration. 

  • Alternative Asset specialization:

As specified above, one thing to consider is the type of asset in which you would like to invest. Not all self-directed IRA custodians offer the same assets. Your first goal, then, is to find a custodian, like Horizon Trust, that specializes in alternative investments.

  • Fee Structures:

Regardless of who you choose for your SDIRA custodian, you’ll be required to pay at least some type of fee. There are a variety of fee types, and many custodians will charge more than one. However, typically, SDIRA custodians will charge one of the following:

    • Total Asset Value, or a fee that is based on the total value of the assets in your portfolio
    • Per Asset Basis, or a fee that’s based on the total number of assets in your portfolio
    • Flat Fee, which is an annual fee that is charged regardless of the asset type

When you open a self-directed IRA, you may also find that custodians charge additional activity-based fees. This includes transaction fees, service fees, setup fees, account research fees, and account closure fees. [ Learn more about SDIRA Custodian Fees].

  • Customer Service:

Customer service may not always be easy to quantify, but if it’s bad, you’ll know it. Before you choose a custodian to help you manage your retirement savings – presumably for years to come – it’s important to make sure they’re going to offer you the customer support that you need.

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You may not be able to see into the future, but you can get a good inkling of what you can expect if you take note of a few key things. Before you sign on the dotted line, read reviews, speak to other customers (if that’s an option), and pay attention to your interactions with representatives prior to becoming a customer. 

3. Choose Between A Traditional And Roth IRA

When you open your SDIRA, you’ll need to choose between a traditional and Roth IRA. Though similar, there are significant differences that may make one better suited for your needs.

For instance, traditional IRA contributions are tax-deductible in the year they are made but are taxed upon withdrawal. Conversely, Roth IRAs are non-tax deductible, but withdrawals are not taxed if made after 59 ½.

Learn more about Traditional vs Roth IRAs.

4. Open And Fund Your SDIRA

Once you figure out what type of assets you’d like to invest in, the type of IRA you want to invest in, and which custodian you want to work with, it’s time to open your IRA. At that point, you’ll be able to work alongside your custodian to complete paperwork, choose the right structure.  

As part of the opening process, you’ll need to determine how you plan on funding your IRA, both to open and in the long-run. To open your account, you can transfer or rollover funds from existing accounts. You can also set up a contribution to open and continuously fund your IRA.  

Typically, it takes between seven days to three weeks to open and finalize your new SDIRA, but with the right custodian, you’ll be able to find wrap this up much faster. 

Have more questions? Ready to get started? Contact Horizon Trust today. When it comes to opening your self-directed IRA, the best thing you can do is speak to an experienced custodian that can help you find the best solution for your goals.