How is the Money Handled if I Invest with My Self-Directed IRA?

May 18, 2018 No Comment

In a Self-Directed IRA account with Preferred Trust Company, the money you have sitting uninvested in your account is insured by the FDIC. Those non-invested funds will earn you monthly interest based on the rate of the national average for six-month CDs. But that minimal return isn’t the reason why you opened the account in the first place, right? Once your account is opened and funded, you will have the opportunity to invest and potentially produce a greater return in alternative investments. However, once your funds are invested, they are no longer in the possession of Preferred Trust Company and are therefore no longer insured by the FDIC.

To ensure that transactions related to your investments (i.e. purchases, sales, interest/dividend income, etc.) are handled correctly by Preferred Trust Company, any and all documents that are related to an investment must be titled in the name of your IRA. In the eyes of the IRS, you and your IRA are considered two separate entities, so your investment documents cannot be titled to you personally. For example, if you invest in real estate, the title of the property would be: Preferred Trust Company FBO (your name) IRA.

Once your investment documentation is completed and verified for accuracy, Preferred Trust Company will then process the investment and your funds will be sent from your IRA account for the investment based on your specifications. All records pertaining to the investment (such as real estate deeds, original notes, operating agreements for LLCs) are retained by Preferred Trust Company. Also, once your IRA “owns” the investment as an asset, all profits and expenses related to the investment will be processed directly to and from your IRA account.

When you are ready to sell the investment, it is pivotal that you ensure all final documentation is filled out correctly. As the account owner, you are ultimately responsible for this final approval. The original documents must then be sent to Preferred Trust Company for final signature. Once everything is complete, the funds from the sale of the investment return directly to your Self-Directed IRA tax deferred or tax-free depending on the account.

Remember, your Self-Directed IRA investments are not guaranteed. Only cash balances that are held in your IRA account are FDIC insured. For this reason, self-directed investing may not be for everyone. However, most successful investors feel that having the opportunity to invest in alternative assets they know and understand helps to outweigh the risks associated with the traditional investment markets.

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