Steps for setting up a self-directed IRA

Estimated reading time: 2 minutes(Last Updated On: April 13, 2021)

The Internal Revenue Service is restrictive on the type of assets that you can own through the IRA. For instance, it prohibits ownership of alcoholic beverages, some precious metals, jewelry, collectibles, and life insurance. It does, however, allow investment in private stocks held in corporations or limited liability companies. The steps for setting up a self-directed IRA are as outlined below:

Identify a custodian

It’s important that you identify a third party administrator or a trustee who is willing to hold your assets under your self-directed IRA. The trustee(s) must have the authorization from the IRS to act in this capacity. The trustee must also be specialized in financial planning and be experienced in handling the Retirement Investment Fund.

Open an account with the trustee

Open an account with the chosen custodian and fund it with up to $6,000 ($7,000 if 50 or older). Alternatively, you can execute a trustee-to-trustee rollover transfer. It’s a directive to your old IRA to move your assets to the new IRA under the new trustee. Your new custodian will give you the forms required to finalize this paperwork.

Identify the desired area of investment

With an account ready, you can now choose the type of business that you want to venture in, locally or internationally. You should not have any association with the business that you choose or have any control over it. Also, your spouse, ascendants, descendants, their spouses or any fiduciary that advises you on IRA should not have any links with your business venture. For instance, your lawyer or broker cannot persuade you to trade in shares in their limited liability companies. You have the freedom to decide the percentage of ownership that you want in a corporation, LLC or partnership. You can buy the whole establishment, or have a fraction of its shares.

Direct your custodian to purchase the interest.

You can then write to Quest IRA to purchase the interest you want, specifying the buying price, the counterparty as well as the percentage of interest (for an LLC or partnership) or the number of shares that you want to buy (for a corporation). After that, keenly verify the transaction to see if it’s successful.

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