Did You Know There Are 3 Different Kinds Of Self-Directed IRA’s?

Best Way to Plan for Retirement – IRA Accounts

A Self-Directed IRA is a type of IRA which allows you to have more control over your retirement funds. But what you may not know is that all self-directed IRAs are NOT the same.

It is well known that the IRS allows you to use your IRA to make traditional investments, such as stocks and mutual funds. What’s not as well know is the IRS also allows you to use IRA funds to invest in real estate, gold, private business and more tax free.

Many traditional IRA custodians claim to offer a Self-Directed IRA. They probably do. But what that means is you will need to pay transaction fees and get their approval to make an investment.

Whereas, in the case of a Self-Directed IRA LLC, an LLC is established which is owned by your IRA account and managed by you. You can easily keep your Self-Directed IRA LLC funds with a passive custodian, such as a bank. Which means you don’t have to pay fees or ask anyone for permission.

3 Types of Self-Directed IRA Accounts:

1. Financial Institution Offered Self-Directed IRA

The most popular Self-Directed IRA account offered is the financial institution Self-Directed IRA. The reason that this type of Self-Directed IRA is so popular is because it’s offered by most major financial institutions.

With this type of Self-Directed IRA, you can only make IRA investments offered by the financial institution. Which usually include stock, mutual funds, and ETFs. Even though these types of IRA accounts are called “Self-Directed IRA” accounts, they’re limited in their investment options and do not allow you to make any non-traditional investments, such as real estate.

Which makes you wonder…

Why do the financial institutions limit the investment options available?

A financial institution that offers IRA accounts is not required to offer its IRA investors with the opportunity to make all allowable types of IRA investments. For example, even though real estate is an IRS approved investment, an IRA custodian is not required or obligated to offer that investment option.

Accordingly, most financial institutions offering IRA accounts will restrict the IRA investment option to financial products offered by the financial institution. So now the reason might be obvious to you.

A financial institution can’t earn fees from the sale of financial products if it allows its clients to pull money out of the IRA account to buy real estate from someone else.

2. Custodian Controlled Self-Directed IRA

A custodian controlled self-directed IRA offers you more investment options than a financial institution self-directed IRA. With a custodian controlled Self-Directed IRA, a special financial institution or IRA administrator will serve as the custodian of the IRA.

All legitimate IRA custodians are FDIC insured. Unlike a financial institution, most IRA custodians generate fees simply by opening and maintaining IRA accounts and do not offer any financial investment products or platforms.

With a custodian controlled Self-Directed IRA, the IRA funds are generally held with the IRA custodian, who at your direction, will then invest those IRA funds.

Not as “self directed” as it claims to be.

Anytime you want to make an investment or contribution you have to use a custodian, which involves annual fees, time delays, and transaction fees.

In other words, you’re not in control. You can’t even pay an IRA transaction expense (mowing the grass or pay the bills on a real estate IRA investment) without having to pay a custodian to do it for you.

So to summarize the above, if you’re really trying to get control over your investing without having to pay lots of fees, you don’t want a custodian controlled self-directed IRA!

3. The Self-Directed IRA LLC

No one knows how long the Self-Directed IRA LLC has been in use, but it wasn’t until 1996 during the case of Swanson vs. Commissioner that they became widely known, though not widely used.

In 1996 the tax court set a precedent which would forever permit a new type of self-directed IRA structure known now as the Self-Directed IRA LLC, which is much simpler (and cheaper!) than investing through a regular custodial controlled self-directed IRA account.

The Self-Directed IRA LLC vs. A Custodian Controlled Self-Directed IRA: 6 Aspects Compared.


With a Self-Directed IRA LLC, you will have direct access to your IRA funds allowing you to make an investment quickly and efficiently. There is no need to obtain approvals from your custodian or deal with time delays in awaiting approval from your custodian or pay any review fees.

Your IRA funds will be held at a passive custodian, such as a local bank, instead of at a custodian you have never worked with before.


When you find an investment you want to make with your IRA funds, simply write a check or wire the funds straight from your Self-Directed IRA LLC bank account to make the investment.

The Self-Directed IRA LLC allows you to eliminate the delays associated with a custodian controlled Self-Directed IRA account, letting you act decisively when the right investment opportunity presents itself.

Lower fees, higher profits.

Another advantage to a Self-Directed IRA LLC account is that you will save a lot of money on custodian fees associated with a custodian controlled IRA. You won’t be paying transaction fees, annual fees, or any other fees other IRA holders pay.

Limited liability protection.

By using a Self-Directed IRA LLC you will benefit from the limited liability protection afforded by using an LLC. By using an LLC, all your IRA assets held outside the LLC will be protected from lawsuits.

This is especially important in the case of IRA real estate investments where many state statutes impose an extended statute of limitation for claims arising from defects in the design or construction of improvements to real estate.

Asset & Creditor Protection.

By using a Self-Directed IRA LLC your IRA will be protected for up to $1 million in the case of personal bankruptcy. Also, most states will protect a Self-Directed IRA from creditors’ claims against you outside of bankruptcy.

Privacy Protection.

With a Self-Directed IRA LLC, your investments will be made in the name of the LLC. But with a custodian controlled Self-Directed IRA, your name will be in the name of the investment allowing the public to locate you.

To learn more about a Self-Directed IRA LLC, call Royal Legal Solutions today at (512) 757–3994  to schedule your free no obligation consultation!

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