Do you have the majority of your savings stashed away in a 401k or IRA? How many investment choices do you have available to choose from? The usual scenario is maybe 10 to 20 mutual funds that your company offers in its 401k plan. Then down the road you change jobs and that 401k plan converts to an IRA. Most people just keep those funds in the same investment plan and do not even know that they have other options available to them. If you are here on this forum you most likely have given some thought to protecting your assets from an economic collapse. Digital dollars invested in stocks, mutual funds, bonds, etc may not be your idea of financial security for an uncertain economic future.
On quite a few survival type forums I have heard of folks so frustrated with the lack of control of their IRA funds that they resort to taking the assets out of the IRA in spite of the 10% penalty and full taxation of the distribution. Perhaps they desire to use this money to stock up on food, firearms, ammunition, and other supplies. They may do this because they are concerned about the economy and wish to use their IRA funds to buy something they really need. Unfortunately IRA funds cannot be used for those items. But you can keep your IRA and invest in some tangible items such as land and gold or silver. To have complete and full control of your assets you may need to cash your IRA in and take the penalties, but there is another way.
I classify IRA freedom and control into four levels. Level 1 being the least control and level 4 being the most control.
Level 1 IRAs. This is where the vast majority of Americans stay at. Level 1 IRAs are the severely limited mutual fund plans that most companies offer from firms like T. Rowe Price, Fidelity, USAA etc. You get the standard 10 to 20 mutual funds to choose from and that is it. You need to understand that you are very limited in your investment choices at level 1.
Level 2 IRAs. Brokerage accounts. Most people do not even know that this option is even possible with an IRA. Take that level 1 IRA and transfer the funds to a stock broker. You can select a full service broker with higher commission and fees or go with an online broker such as Scott Trade, E-Trade etc. With a brokerage account you have access to stocks, bonds, Mutual funds, exchange traded funds (ETFs) and more. There are thousands of choices at this level. Your choices are much greater but you are still investing your money in digital dollars in the securities markets. Maybe you are considering precious metals or real estate. These are tangible investments that have real value outside of the digital dollar world. Read on for level 3.
Level 3 IRAs. The self-directed IRA. With a self-directed IRA, you can invest in Real Estate, Tax liens, precious metals and everything from level 1 and 2. The problem with this option is that it is not really self-directed. To have a self-directed IRA you need to transfer the funds to a company that specializes in this area and they act as the custodian of your funds. They hold your funds until you select an investment and then they must approve that investment before any of your funds are released. If you are into time sensitive real estate investments such as foreclosed or distressed properties that sell at auction, the custodial trust company may not approve the transaction in time for you to purchase the property. And every transaction is assessed fees by the custodian company. If you want to purchase precious metals, you cannot take delivery of the metal. There are companies out there such as Swiss America that will help you to open a gold, silver or platinum IRA account. You can transfer an existing IRA directly to them and they will set it up. Again the precious metal is held in a secure vault in your name and you cannot take possession until you are 60 years old. For some this may be an option. One problem with self-directed IRAs is that you can quickly rack up so many fees in dealing with this form of IRA that it can be cost prohibitive. And of course in a total economic collapse, you must consider the possibility of never receiving your gold and silver that is stored in a 3rd party vault somewhere. Do you want the freedom to act fast on real estate deals and to physically hold your precious metals in your possession? Level 4 IRAs may be for you.
Level 4 IRAs. The self-directed IRA with a Limited Liability Company (LLC). Level 4 IRAs give you the most control of your assets. This level is a bit more complicated than the rest and requires some paper work and costs initially, but in the long run you have the most freedom. With this option, you form a single member LLC (you) with your state and act as your own agent. It sounds more complicated than it is and there are companies online that will draft up the articles of organization to set up your specific LLC for the sole purpose of managing your IRA. With a level 4 IRA you can invest in all 3 of the previous level investments and you can do it with check book control.
Let me break it down into simple steps. For example: Step 1. You form a LLC with the specific purpose of managing your IRA. Step 2. Select a custodian which is a trust bank that is set up to deal with self-directed IRAs. They act as the initial custodian of your IRA funds and are required to ensure that your IRA meets legal guidelines. You initially deposit or transfer your IRA funds to this custodian bank. Step 3. Select another bank of your choosing that has business accounts available. At this bank you open an account under the business name of your LLC. Step 4. Transfer your IRA funds from the custodian bank to your business account LLC.
You are now the manager of the LLC which is the owner of the self-directed IRA. You act on behalf of yourself with complete checkbook control of your IRA assets. The LLC can legally hold the assets of your IRA. This kind of control is only possible at this level. As the manager of the LLC you will have a checkbook from your account and can invest your assets as you see fit. As long as the IRS agrees that what you are investing in classifies as an investment it is acceptable. IRS publication 590 spells out what you can and cannot invest in an IRA. Now you can purchase gold or silver bullion and take possession of the actual metal and store it yourself as you see fit. Put it in your home safe, or put in your safe deposit box. You could choose to buy gold and store it abroad in a Swiss bank. As the manager of the LLC you are expected to secure the funds in a safe and secure manner. With checkbook control you can shop around for the best prices on your precious metals. If you can afford to meet the purchase amount minimums the Tulving company has the lowest premiums over spot that I have found.
Now you can access all that money that was “trapped in an IRA” and take control of it and place it in a tangible, non-paper asset such as gold, silver or real estate. You can also invest your LLC IRA funds in many other investments that you could never consider with a regular IRA.
With the self-directed IRA LLC, you have much more latitude to invest your IRA funds as you see fit. There are still limitations. For example you can invest in and physically hold precious metals such as gold and silver, but it has to be classified as bullion so that means .999 pure or better coins, rounds, bars etc. So 90% silver pre-1965 US coins are not authorized. Also you cannot invest in numismatic or antique coins.
Check book control is a must for certain types of real estate investments. If you find a property that is selling for cash or is up for auction you can buy it on the spot. There is no custodial company permission required and no extra fees levied on your funds. You are the manager and you give yourself the approval to purchase your investments. Again IRS Publication 590 spells out the rules for real estate. For example you can buy real estate as an investment but it cannot be used as a residence for you or anyone in your family. Common sense applies here and if you always think of what you invest in as an investment that benefits your IRA, but not you personally then you should stay within the bounds of IRS approved investments of IRA funds.
A word of caution. You must stay within the limits of IRS approved investments. If you do not, and you are audited by the IRS they can treat the illegal investment as an IRA distribution and disallow the entire IRA. This event would trigger the 10% tax and your entire IRA would be taxed as a distribution for that tax year. Again refer to IRS pub 590. You can also get investment advice from the company that you used to set up your self-directed IRA LLC. They can offer counseling and guidance on any questions that you may have concerning whether or not a proposed investment is approved for IRA investments.
One other nice feature of the self-directed IRA LLC is you can be a day trader or at least a frequent securities trader using IRA funds. Normally if you have an IRA brokerage account you are limited in the buying and selling of securities due to the fact that it is an IRA and you usually have to wait a few days for the transaction to clear before you can use those funds again. With the IRA LLC you transfer your funds (write a check from your LLC) to your brokerage and open a regular account. Since it is a regular account you can request margin so there is no waiting period and you can trade securities as often as you wish. The best part is that these trades are still tax-free and you do not report any capital gains because the account is under the IRA investment management of your LLC.
I have just scratched the surface of what you can do with a self-directed LLC IRA. You can also loan out money and charge interest, you can invest in a business, invest in tax liens and much more. For the purpose of survival blog readers I have focused on precious metals and real estate, but there is so much more available. For more information on the process just do an internet search of “Self directed IRA LLC with checkbook control”. Don’t confuse this with a regular self-directed IRA. They are completely different. Be careful though, there are companies that will charge you 2 or 3 thousand dollars to set up your IRA LLC. I found a company that charged around $500 to set up mine.
In summary, you do not have to be limited in your investment choices for your IRA funds. If you have your money “trapped” in a regular IRA you can create a LLC and liberate your money to invest in some real tangible assets.