Self-Directed IRA Expert: Horizon Trust BlogJuly 20, 2022by horizontrustHow to Set Up a Self-Directed IRA: Step-By-Step Guide

When you think of IRAs and other common retirement accounts, you likely imagine portfolios with fairly traditional investments, like stocks, mutual funds, and bonds. 

However, self-directed IRAs (SDIRA) provide the control and flexibility you need to invest in a wider range of opportunities — many of which have the potential for significant growth. So a self-directed IRA might be right for you if you’re looking toward investments like crypto, gold, or even promissory notes. 

If you’re considering setting up a self-directed IRA, we’ve prepared this step-by-step guide to get you started. 

 

1. Research SDIRA Custodians

 

Several financial services organizations offer IRAs, but most of them, especially the big-name brands, don’t offer SDIRA services. If you want to open an SDIRA, you’ll need to look for a bank or trust, like Horizon Trust, that specializes in this type of investment. 

As with any financial service, it’s always a good idea to compare SDIRA custodians. If you already know what type of asset you want to invest in, look for custodians that have a track record of working with it. 

A few other things to keep in mind are transaction speed and volume, fees, and customer reviews. Learn more about how to find an SDIRA custodian

 

2. Know Your Contribution Limits

 

Most retirement accounts have contribution limits, and SDIRAs are no different. As of 2022, the IRS limits IRA contributions as follows: 

  • Individuals under the age of 50 can contribute up to $6,000 annually
  • Individuals 50-year-old or older can contribute $7,000 annually

IRA contribution limits change from time to time, so it’s a good idea to check at the start of each tax year. 

 

3. Rollover Any Funds from an Existing Retirement Account

 

If you already have an IRA (or multiple IRAs) set up and don’t want to keep those funds separate, you can use them to fund your SDIRA. If you’re moving all your funds to your new IRA, you can likely complete a direct rollover, by which your retirement funds are moved from one trustee to another.

However, the process can be slightly different if you’re planning to withdraw part of your IRA funds. In that case, you’ll receive a check from the initial IRA holder, and then you’ll need to deposit it into your new account. If that’s your plan, you have 60 days to deposit the funds; otherwise, you may be required to pay income tax.

Before you roll over your funds, it’s a good idea to speak with your custodian or a tax advisor who can help ensure you’re on the right track and avoid any unnecessary fees or taxes. 

 


Consult with Horizon Trust


 

4. Start Contributing to your SDIRA

 

Regular deposits or contributions to your account will make it easier to reach your retirement goals. Rolling over or transferring funds from an existing retirement is one way you can do that, but most individuals choose to set up recurring contributions.

The exact process of setting up regular contributions can vary from custodian to custodian. Typically you can set up a direct transfer from your bank account or deposit via check. If you set up a direct ACH contribution, you’ll likely need the following information: 

  • SDIRA account number
  • Bank routing number and account number
  • Social Security Number
  • Desired contribution amount
  • Desired contribution schedule (i.e., monthly, quarterly, etc.) 

 

5. Perform Due Diligence of Assets to Invest In

 

Aside from your ability to invest in a broader array of assets, one of the distinguishing characteristics of an SDIRA is control. As part of that control, due diligence falls on the account owner, not the custodian. 

The best way to practice due diligence is to actively and thoroughly research any investment opportunity. That means vetting the investment and any parties involved, like realty groups or brokerage firms. 

You can also speak with other investors or work with a trusted financial advisor to ensure that you’re making the best decisions for your future. 

 

6. Find a Broker to Purchase Assets 

 

Even though you can purchase alternative assets for your portfolio, you’ll still need to follow some fairly common protocols. For example, you’ll likely need a broker to buy stocks and bonds as well as other types of assets common in SDIRA accounts, like SDIRA real estate, cryptocurrency, or livestock.

The due diligence recommended above is valid here as well. However, if you’re unsure where to start, your custodian can help. That’s why it’s a good idea to work with a custodian specializing in the types of assets you want to include in your portfolio. 

 

7. Seek permission from Your Custodian to Complete Transactions

 

Though your custodian doesn’t pick and choose how you invest your money, they are charged with some oversight and important tasks, like writing checks, transferring funds, and various other administrative tasks associated with an asset purchase or trade. 

As the decision-maker and investor, you need to direct your custodian to complete an approved purchase or trade. You can speak to your custodian directly to identify the correct process and forms you’ll need to complete to execute a transaction. 

There are a lot of benefits to opening an SDIRA, especially for investors who want to tap the potential of real estate, cryptography, promissory notes, and other common SDIRA assets. While an SDIRA account is a departure from traditional retirement savings strategies, the ability to diversify and really control your portfolio can be worth it. 

If you’re considering opening an SDIRA, make sure you practice due diligence every step, from vetting a custodian to researching each asset and broker with which you engage. 

Still have questions? Contact us today, and a Horizon Trust financial expert will help you get started on your SDIRA journey.

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