Self-Directed IRA FAQs

Midland IRA provides exceptional professional service on a personal level to our clients. With a combined 20+ years in our industry, our staff provides administrative services to ensure the elements of your self-directed investment accounts fall within the limits of IRS rules and regulations. Midland IRA also offers cutting-edge educational curriculum designed for all types of investors to learn how self-directed accounts have the potential to build wealth at a faster pace than traditional methods may. While we offer no investment advice or opinions, Midland IRA does allow you to achieve true investment freedom and the power of choice of your own investments.

For IRAs, Midland IRA acts as an agent for custodial banks, and provides record keeping and tax reporting for non-traditional assets. For qualified plans, such as the Individual 401(k), we provide the plan document, which is qualified under the IRS code. Midland IRA also provides record-keeping services for the plan assets you elect. We also offer a “Do Your Own” plan in which we provide you with the IRS-approved plan documents, but you personally perform the record-keeping functions.

You will receive paper statements from Midland IRA annually and can check your statements online at any time.

Midland IRA does not sell any assets. Midland IRA is the administrator of your IRA.  Your initial funds are put in a liquid cash only account. Self-Directed IRAs allow investors the opportunity to make their own decisions to invest their assets. The client makes the ultimate choice in their investment decisions.  Midland does not promote, sell, or evaluate any assets. The gain or loss of any asset is based on the investment that the client chooses. Midland IRA has been in business since 2003. With over $2.3 Billion in assets and 16,000 active clients, we pride ourselves in providing the IRA vehicle to help our clients achieve their financial goals. Investments are never insured inside an individual retirement account.

Opening a New Account

You can get started in 3 steps:

  1. Open an account with Midland IRA.
  2. Move money into the account.
  3. Identify the asset you wish to purchase.
  4. Contact Midland IRA and tell us what you want us to do!

Complete our simple online application by going to:

Need help filling out the online application? Watch this short video to learn how:

Once an application is received, normal processing time on applications is 24 hours to have the account fully opened and approved. We will assign an account number and submit the transfer form the same day it is received.

Funding an IRA account can be accomplished in three different ways:

  • IRA to IRA transfer
  • Rollover from a 401(k) or other employee-sponsored plan (403(b), 457, TSP, etc.)
  • Annual contribution

A rollover is a movement of funds from one custodian to another initiated by the client, usually to move an old 401(k) plan to an IRA. A trustee-to-trustee transfer is sent by Midland IRA to the other IRA custodian and is done for any IRA to IRA movement of funds.

Transfers typically take approximately two weeks to be completed. Depending on the custodian and how the transfer is submitted and funds are requested, they may take more or less time to complete.

As long as you can move those funds into an IRA, you can use them to invest in real estate. To make sure that 401(k) funds (or any other employer-sponsored plan) can be rolled over into an IRA it is best to contact the administrator of your plan.

Contributions and Distributions

Required minimum distributions (RMDs) are minimum withdrawal amounts that must be taken annually by the plan owner. RMDs must begin within the year the plan owner turns 70 ½ years of age, OR in the year of retirement if he or she retires after that age. Retirement plan participants and IRA owners are responsible for taking the correct amount of RMDs on time every year or face stiff penalties for failure to do so.

**Please note that Roth IRA owners do not have to take RMD’s.

Depending on the type of IRA account, the IRS does place a limit on the amount that can be contributed on an annual basis. For the most common account types, traditional and Roth IRAs, this limit is currently $5,500 if you are under the age of 50 and $6,500 if you are over 50. For a full list of contribution limits for other types of accounts, please contact Midland IRA.

Self-Directed Plans and Alternative Investments

A self-directed IRA is a unique investment account that allows alternative investments to be held as assets that can potentially build tax-free or tax-deferred wealth at a faster pace than traditional methods may.

Your current financial professional may not be aware of these options as they only offer products that they sell which typically involve stocks, bonds and mutual funds. Self-directed IRAs and other plans allow you to choose alternative investments. When you self-direct, you control your own investment choices and can potentially build wealth in your accounts by investing in what you know best.

Visit our Types of Accounts page to see the many different types of accounts that can be self-directed.

The following plans can be self-directed: traditional, Roth, SEP and SIMPLE IRAs, individual 401(k) plans, health savings accounts, and education savings accounts.

Many factors can determine which self-directed plan is right for you. These factors include, but are not limited to, your age, contribution and deferral capability, whether you are a sole proprietor or own a company, if you have common-law employees, when you wish to retire, and your tax position. A self-directed IRA with Midland IRA enables you to invest in many options other than traditional stocks, bonds and mutual funds. You are able to invest in things you know best in order to maximize the earning potential of your self-directed IRA.

It is important that you are knowledgeable in the areas you choose to invest. Please seek the services of a tax professional or a financial planner to work with you on specifics when investing in areas outside your own expertise. Many investment options are complex and you need to determine your level of comfort before making a move.

More conventional IRA and retirement plan investments include stocks, bonds or mutual funds. These are common types of investments available through most brokerage firms and banks. Alternative investments are those not sold by or available from more conventional IRA administrators. For example, real estate, mortgage notes, private placements, and foreign currencies are considered non-traditional assets (i.e., alternative investments) that can be held within a self-directed IRA.

By using Midland IRA as your self-directed retirement account administrator, you provide yourself great flexibility in the investment choices you have. Every administrator decides which types of permissible investments they will allow your plan to hold, and Midland IRA allows a wide parameter of opportunities compared to a traditional brokerage house.

Some types of permissible investments include:

  • Stocks, Bonds & Mutual Funds
  • Precious Metals
  • LPs & LLCs
  • Real Estate – rental property, raw land, mortgage notes, tax lien certificates
  • Trust Deeds – like and unlike exchanges, contract options, building bonds
  • Commercial Paper – commodity and option exchanges, futures
  • Private Placements – certificates of deposit, tangible asset deeds, foreign stock, accounts receivable

**This list does not cover every single investment opportunity, and Midland IRA does not promote investment products. It is important that you consult an accountant or other professional to determine your own permissible investment opportunities.

Anything not deemed prohibited by Internal Revenue Code 4975 may be purchased within an IRA or other qualified plan. The code prohibits life insurance and collectibles (art work, antiques, rare coins, rare stamps, etc.). Your retirement account may purchase other items, including, but not limited to, notes, options, private placements, accounts receivable, timber deeds, crops, cattle, stock, bonds, mutual funds, and certificates of deposit.

There are more alternatives than we list here, and it is very important to consult a financial planner or accountant regarding investments you wish to make within your self-directed IRA to ensure your investment choices fall within regulated guidelines.

The simple answer to this question is that Midland IRA does permit this type of investment. However, we strongly advise the prospective investor to do some research prior to making this investment, and to seek the advice of a qualified attorney or other professional before choosing this investment option.

The checkbook-control LLC strategy is set up by having an individual’s IRA own 100 percent of a single-member LLC. The individual IRA owner is then named personally as the LLC manager. As the LLC manager, the IRA owner has the ability to sign any documents, including checks, for the LLC. The LLC is 100 percent owned by the IRA account, thus, it gives the IRA owner, as manager of the LLC, checkbook control over his or her IRA.

The following plans can be self-directed: traditional, Roth, SEP and SIMPLE IRAs, individual 401(k) plans, health savings accounts, and education savings accountsThe following plans can be self-directed: traditional, Roth, SEP and SIMPLE IRAs, individual 401(k) plans; health savings accounts, and education savings accounts

The checkbook-control investment strategy has not been expressly confirmed as an acceptable arrangement by the IRS. (Despite some firms declaring that their IRA-LLC has been blessed by the IRS, this is simply not the case.) There is an issue that remains unresolved as to whether the IRA owner acting as the manager of an LLC which is owned by the IRA constitutes a prohibited transaction under IRC Section 4975. As this issue has not been fully resolved by the IRS, Midland IRA will allow an individual to make this investment, but will have the IRA owner sign an indemnity agreement relating to the transaction.

Yes, as long as the business is not an S-Corp and the IRA holds a minority interest. Other restrictions may apply. See IRS Rules Section 4975 or consult your advisors for more information.

Health Savings Accounts

Yes, you can acquire assets within HSAs in the same manner as a self-directed IRA. By self-directing the funds in an HSA into alternative investments such as real estate, notes, and partnerships, you may potentially build wealth in the account at a faster pace than through traditional investments.

Education Savings Accounts

A Coverdell Education Savings Account is a type of Education Savings Account (ESA). An ESA is a tax-advantaged, custodial account that is similar to a Roth IRA, except the funds must be used exclusively for paying education expenses for the beneficiary.

You do not need earned income to contribute to an ESA, and the contributor can be any individual, including the designated beneficiary of the account. Contributions are discretionary, meaning that you are not required to make deposits every year.

A self-directed Coverdell Education Savings Account (ESA) from Midland IRA provides you the ability to grow money and gain wealth on a tax-free basis for your child’s education. By self-directing the funds in an educational IRA into non-traditional investments that you know, such as real estate, notes, and partnerships, you may grow the wealth in the account faster than through traditional investments.

Restricted Investments

Pursuant to Internal Revenue Code 4975, life insurance and collectibles are prohibited items to purchase within your IRA. Collectibles include works of art, rugs, antiques, metals (other than gold, silver, and palladium bullion), gems, stamps, coins, alcoholic beverages, and other tangible personal property as may be defined by the Secretary of Treasury.

The same code section also defines disqualified persons – certain people and entities that are deemed disqualified in terms of doing business with your IRA.

Real Estate Investing

Yes! Since the inception of IRAs in 1974, real estate has been a viable option and a popular investment choice. A self-directed IRA or real estate IRA gives you the freedom to invest in real estate related vehicles such as raw land, rental properties (single-family and multi-unit), commercial property, mortgage notes, tax liens, and more. Many investors find investing in real estate attractive because it is fairly easy to navigate and the investment is secured by a tangible piece of property.

Midland IRA helps clients maximize the wealth-building potential of self-directed retirement accounts by providing premier educational programs and outstanding, personal client service. While we can give you no advice in making investments, we hold seminars that include a cutting-edge curriculum designed to make self-direction easy and empowering. We frequently host live webinars as well as workshops and other events about acquiring real estate in your IRA. Visit our event calendar for upcoming dates.

IRAs were created in 1974 and ever since their creation they have been able to own real estate, as well as other investments. However, many banks and brokerages do not allow their clients to hold real estate in an IRA.

The buyer of the property is the IRA, a separate entity than the IRA holder. All of the real estate closing documents are titled in the name of the IRA.

The IRA is the owner, therefore any proceeds generated from the property must be paid to the IRA. For example, if you lease your property the rent payments will be deposited into the IRA, tax-free. Conversely, any expense generated by this property must be paid for by the IRA. For example, property taxes, improvement costs, and HOA fees would all be paid for from the cash inside the IRA.

While the IRA is the owner of the property, the IRA holder and/or their disqualified parties may not use or otherwise occupy the property. The IRA-owned real estate must be treated as an investment while it remains inside the IRA.

Disqualified parties include: the IRA holder and spouse; the IRA holder’s lineal descendants and their spouses; the IRA holders lineal ascendants; investment advisers, managers; corporations, partnerships, trusts, or estates that disqualified persons own a 50 percent or greater interest; anyone providing services to the IRA.

IRAs can purchase in three ways. They can buy 100 percent of the property; they can be a partner with other people, entities or even IRAs; or they can obtain non-recourse loans.

All expenses and rental income flow through the IRA account. With rental income, your tenant would make the rent check payable to your IRA and send it directly to Midland IRA. When expenses for the property are incurred, you would contact us and instruct us to cut a check from your IRA account for a particular invoice.

No. You and most family members are prohibited from using any asset owned by your IRA. It must be a passive investment per IRA Section 4975.

No. You must pay for any services through your self-directed IRA, and you are disqualified from receiving any income or personal benefit from your IRA, as are other disqualified person(s) and entities. You are unable to make repairs yourself for no pay, because that would be considered contributing “sweat equity.” Sweat equity is difficult to quantify, but also not allowed because all contributions towards an IRA must be in cash. You are able to choose contractors to be paid through your IRA to perform maintenance and repairs as needed.

If your self-directed real estate IRA does not have enough money to pay unexpected expenses, there are several options.

  1. Make an annual contribution if you are eligible.
  2. Take on a partner who is not a disqualified person.
  3. Get a non-recourse loan. Unrelated Debt-Financed Income (UDIT) tax may apply.

If your IRA cannot afford the investment you are interested in, you have several options:

  1. Partner your IRA’s funds with your personal funds. For example, your IRA can own 50 percent and you personally can own 50 percent, which would make you tenants in common.
  2. Partner IRA funds with funds you personally guarantee, like a home equity line of credit.
  3. Your IRA may also partner with someone else’s personal or IRA funds. Please note: The disqualified persons rule may not apply here since you are not transacting with the individual. Therefore, it is possible to partner with your spouse, parent, or child.

Futures and Forex

Broker-assisted, fully self-directed, managed futures and forex accounts.

Transferring your existing IRA to Midland IRA can take up to 2 weeks. Once Midland has the funds, we can process in 24 hours.

Like all assets held within a retirement plan, the offering will be vested in the name of the IRA (Midland IRA, Inc. FBO Client Name, IRA#). This way, any income that is generated will be returned to your retirement account tax-free or tax-deferred.

Futures trading can be risky. You can setup a total self-directed futures trading account where you place all trades.

Contact us today and speak to one of our specialists. To see a list of our free educational workshops, visit our events page.

Finding Additional Investment Funds

In most cases, an IRA can purchase investments in three different ways:

  1. Paying in cash
  2. By forming partnerships
  3. Taking a non-recourse loan (i.e., from a bank)

A non-recourse loan is one that is secured by the actual asset you purchase with that loan (i.e., a piece of property). Unrelated Business Income Tax (UBIT) may apply (IRS Pub-598).

It means the loan is only secured by the subject property, not by you personally. UBIT may apply (IRS Pub-598).

Unrelated Business Income Tax (UBIT) applies to operating income received from companies owned by IRAs. Unrelated Debt-Financed Income (UDFI) tax applies to the portion of the property that has been debt-financed within an IRA. Qualified plans, like the Individual 401(k) plan, do not pay UBIT or UDFI.

Taking Loans From IRAs

IRS rules prohibit you from taking a loan from your IRA. However, you may take a loan from a qualified plan, such as a 401(k).

Disqualified Persons

A disqualified person or entity is prohibited from doing business with your plan because of a relationship to you. Including you, the following are a few examples of disqualified persons:

  • Fiduciary of the plan, including the IRA owner
  • Employer of employees covered by the plan
  • Certain family members of the IRA owner (spouse, lineal ascendants and descendants, and any spouse of a lineal descendant)
  • Anyone providing services to the plan
  • Employee organization whose members are covered by the plan

**Note that siblings are not included in the list of disqualified persons, and also note this list is not complete and you should seek the advice of a competent professional to help make decisions regarding disqualified persons or entities.