In January I wrote about a decision I made to change around some accounts so I could invest in a new way. Well, I’d like to continue on that thought where I had left off.
Past Events
Like I mentioned I was in the beginning stages of making my first deal when I discovered that the custodian I had chosen wasn’t as perfect as I had hoped. I don’t doubt they are a good company. I will say again each time I’ve conversed with them, I have received professional responses. The problem I was dealing with is specific to my situation and can be described by showing my experience with the two options in the first stages when one wants to invest.
Option A
to direct the IRA custodian to purchase a property on my behalf.
Pro’s
The custodian handles all documents
Reported IRA value maintained in-house by custodian
Con’s
Each purchase is subject to an onslaught of fees
Cost for one annual purchase $95, anything more $165 annually.
Involving a middle-man requires more time
Auction deals require quick decisions at times I have decided to participate the day before the auction, thus causing timing issues with custodian
Option B
to direct IRA custodian to purchase LLC on my behalf
Pro’s
As acting manager of LLC I can invest faster
Requires only one purchase direction by custodian, saving money
Con’s
Reporting to IRS done by the LLC
Easier to commit prohibited transactions
For this specific custodian these were the variables I faced. For me the ability to make quick decisions was ideal, so upon selecting a custodian I proceeded to research how to set up my this IRA owned LLC.
Previously I had made sure they would allow such a purchase since through my research I had seen than not all custodians are fond of this plan. Why? For the simple reason that they will make less money.
So excited and ready for action I contacted the custodian. This is quick glimpse at our conversation:
‘Hi, my name is Dauvo and I’d like to purchase an LLC where I am listed as the manager. What should I do?’
‘Yes you can do that. Have you selected an attorney? Or would you like to use our services?’
‘WHAT? Uhhh, No. OK, what do I need if I choose you?’
‘Well we can connect you to our sister company that provides services for LLC setup.’
‘And how much would that cost?’
‘Our clients can receive this service for approximately $900.’
….Thud…..
‘Sir, are you there?’
‘Yes! Yes, sorry I was picking my chin up off the floor!’
‘Nickeled and Dimed’
Some dramatization, but you get the picture. Here I was with just shy of $5,000 ready to invest. They already had a rule that $750 had to be kept in the account at all times. $900 more? That’s about 20% of what I had left? That would literally leave me with less than $3,500 to invest. Sure, I could use a credit card to pay the fee for LLC setup leaving my IRA funds clear, but why couldn’t I do the documentation and LLC setup myself? The experience was there whereas I had done it multiple times before.
I insisted that I was capable and they insisted in return that company policy kept them from allowing me to act in this fashion. Supposing it was based on IRS policy, I kindly thanked her and hung up the phone.
What am I going to do now?
Well I kept the thoughts smoldering in my subconscious for some time. Days turned into weeks which turned into months and here we are!
It didn’t help that my site was hacked, and I was working on the Sant’Angelo Condo Project.
Present Day
Today, I decided I had let things get way too out of hand. Being almost one year since I had made my first steps toward financial dominance I had no idea what kind of fees I had been subject to. Fortunately, until I make my first direction notice, the only fee I have paid is the initial setup of the account.
Returning to the issue at hand. Do I choose my own counsel? Or use their services? I had almost resorted to the latter option when a google search dropped an Easter egg in my lap. I had literally come across the solution.
The problem was the custodian’s policy not the situation itself. If I was to transfer to a different custodian I could set up the LLC, register for an EIN for the business, set up a bank account, heck I could even draft my own operating agreement. Obviously I take on the risk, but I couldn’t afford to pay 20% of the invest-able cash to an attorney to do something which I could very well do myself. And that kids is why education is important!
But the questions was, how much will it cost me?
Resolution
Through a bit more research I found a custodian that could fit the bill; Provident trust group out of Nevada. Time to line up those costs and make a comparison.
$600 cheaper?!?! It would appear that even with the $50 setup fee from the previous custodian I would still have almost 300 Euro more to invest here in Italy. This due to the fact that the minimum balance of provident as well as the one time purchase cost are lower.
The annual cost however is higher initially. Assuming no growth of my IRA, it would be better to return to my current custodian after 4 or 5 years. The kicker is as soon as my account value surpasses $7,500. The annual fee of A-IRA increase from $165 to $285 which would put it on par with Provident.
Since the whole point of this process is to increase our Net Worth I don’t imagine staying in the $165 tier for too long.
Where does that leave us? It’s time to call Provident and get the ball rolling!
