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Hello,

I am thinking about rolling over an old IRA with close to 30k (at Vanguard) which is invested in several Mutual funds returning at an annual average of 7-9% over the last 4-5 years. I am being offered private stocks in my current company (privately held) and am considering rolling over the above money to a self-directed IRA so that I can purchase these stocks. My company has a stellar reputation in its field and the private stocks have grown at 10-12% over the past 5-6 years. The outlook of the company is very bright. I have some ownership of the company already and more stocks mean bigger share of the profits and bigger role in management.

I have come across random self directed IRAs through web search. Can anyone recommend any good self directed IRA firms with low set up fees and management fees?

EDIT: Thanks for all the answers. I am in my early 30s and am a critical employee/owner. My current take home is close to $13k, so 30k worth of IRA (from my previous employer) is not as big a deal. I have a much larger nest egg in my current IRA. I would rather not be specific with my employer, but I am in the oil and gas industry (Services not direct production). There are very few companies (swarming with PhDs including myself) that do what we do , in the whole world. I have done the math and spoken to the President and VPs. My additional stock purchase would boost my bonuses from 40-50k to 80-90k per year, should the company perform as it has over the last 4-5 years. 

Thanks

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That is exactly what I was told by Equity Trust, when I called them earlier today.

mrmonty (Sep. 10, 2013 @ 12:21a) |

I've looked more into this and hope I can get a response in this thread instead of starting another. My ideal structure ... (more)

awstick (Sep. 13, 2013 @ 1:30p) |

@awstick --

Although not entirely free from doubt, I think the case is consistent with the notion that since the IRA Hold... (more)

tuphat (Sep. 14, 2013 @ 7:40a) |

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You should realize how risky it is to have your retirement money in company stock.

If the company blows up, it's bad enough to lose your job.  If you lose your retirement funds too, how bad is that?

Think Enron.

7-9% return over the last 4-5 years is pretty good....if you're a young person who wouldn't lose sleep over your 30k potentially vanishing overnight then it's something to consider. I find it odd that owning private stock would give you a "greater management role" in the company.

What kind of business is this?

And finally you mentioned you are with Vanguard. Frankly I think Vanguard offers some of the best choices for investors at very low cost for IRAs etc.

Equity Trust

Based on research when I set up mine (to hold single LLC asset), IRA Services Trust Co. had the lowest overall fee structure, and I have been happy with their service level.  Personally, I shied away from any fee structure based on value.

Treffen said:   You should realize how risky it is to have your retirement money in company stock.

If the company blows up, it's bad enough to lose your job.  If you lose your retirement funds too, how bad is that?

Think Enron.

  
Yes, Enron had a stellar reputation in its field & employees invested heavily in Enron stock because it had a history of growth above market rates.  Not saying your company is the next Enron, but the point is that you never know.  Also, looking at recent returns is no way to pick a worthwhile investment...that's the past.  You're talking about giving up diversification and putting all your eggs (presumably) in one basket.  If this is play money (your IRA shouldn't be play money unless you are very wealthy) then sure, go for it.  If this is money you can't stand to lose, then stay where you are--in low cost, well diversified mutual funds.

tuphat said:   Based on research when I set up mine (to hold single LLC asset), IRA Services Trust Co. had the lowest overall fee structure, and I have been happy with their service level.  Personally, I shied away from any fee structure based on value.
  
This is something I was interested in looking into as well if the fees aren't enormous.  From what I saw on their fee schedule it looks like you pay $115 for the first year and $75 a year after that.  Each asset you hold costs an additional $40 per year.  That's not too bad.  I was thinking I would need to make several more years of Roth IRA contributions before I found it to be worth the fees, but now I may look into it as well.

I just don't get this fascination to speculate with retirement money. Invest in a prudent diversified manner in your tax deferred retirement accounts. If you want to speculate, invest in private stock, real estate, precious metals, etc... do it in taxable accounts. Do it somewhere where you get favorable tax treatment (capital gains) anyway. Not that I recommend anyone have more than 5%-10% of their portfolio in their company stock.

If there ever was a study of self-directed IRA accounts, I am willing to bet that they perform far more poorly than the market in general. For every case there is great returns, there are probably 10 that lose their shirt.
 

btuttle said:   If you want to speculate, invest in private stock, real estate, precious metals, etc... do it in taxable accounts. Do it somewhere where you get favorable tax treatment (capital gains) anyway.
  What's more favorable than a completely tax-free gain in a Roth IRA?

For $30K, it doesn't seem worth it to me. You get pretty favorable tax treatment with a stock like this -- assuming you keep it over a year. If the company goes belly up, then you get to take the loss off your taxes (against other investment gains) -- so you essentially recover some of your money.  If you put it in an IRA and it goes belly up, you get nothing.

For a small company stock, $30K doesn't seem like a lot of ownership (I'm assuming... you know what happens when you assume). You may end up wanting considerably more equity as your salary goes up, the company grows, you get a new role, etc. It would seem to me that having it all just personally owned would be convenient.

Does the company allow you to use your stock as collateral against a bank loan?  Some closely held companies will allow you to use their banking relationship to finance your stock purchase.  If they do and you'd like to use this option to finance additional stock, then it is unlikely the bank will allow you to hold the stock in an IRA.  

My advice is to let your other stocks grow tax free in the Roth and your net difference in total return is pretty small (company stock in Roth versus company stock owned in a taxable account).  I'm in to "easy".  Part of "easy" for me is to use IRAs for stocks I'll go in and out of, reinvest dividends, etc.  For stocks I'll hold for a long time, I try to keep those in a taxable account where I don't have to keep / track records so much and still get fairly favorable tax treatment. 

Others here try to squeeze more off of their taxes.  God bless.  They've got their way, I've got mine.  

awstick said:   
tuphat said:   Based on research when I set up mine (to hold single LLC asset), IRA Services Trust Co. had the lowest overall fee structure, and I have been happy with their service level.  Personally, I shied away from any fee structure based on value.
  
This is something I was interested in looking into as well if the fees aren't enormous.  From what I saw on their fee schedule it looks like you pay $115 for the first year and $75 a year after that.  Each asset you hold costs an additional $40 per year.  That's not too bad.  I was thinking I would need to make several more years of Roth IRA contributions before I found it to be worth the fees, but now I may look into it as well.

  So, did you look at IRA Services Trust Co., too?

debentureboy said:   For $30K, it doesn't seem worth it to me. You get pretty favorable tax treatment with a stock like this -- assuming you keep it over a year. If the company goes belly up, then you get to take the loss off your taxes (against other investment gains) -- so you essentially recover some of your money.  If you put it in an IRA and it goes belly up, you get nothing.

For a small company stock, $30K doesn't seem like a lot of ownership (I'm assuming... you know what happens when you assume). You may end up wanting considerably more equity as your salary goes up, the company grows, you get a new role, etc. It would seem to me that having it all just personally owned would be convenient.

Does the company allow you to use your stock as collateral against a bank loan?  Some closely held companies will allow you to use their banking relationship to finance your stock purchase.  If they do and you'd like to use this option to finance additional stock, then it is unlikely the bank will allow you to hold the stock in an IRA.  

My advice is to let your other stocks grow tax free in the Roth and your net difference in total return is pretty small (company stock in Roth versus company stock owned in a taxable account).  I'm in to "easy".  Part of "easy" for me is to use IRAs for stocks I'll go in and out of, reinvest dividends, etc.  For stocks I'll hold for a long time, I try to keep those in a taxable account where I don't have to keep / track records so much and still get fairly favorable tax treatment. 

Others here try to squeeze more off of their taxes.  God bless.  They've got their way, I've got mine.  

  I agree with you mostly. Its just that I recently helped my brother set up a business with most liquid assets that I had and then, this offer from the management comes up. So, I have this old IRA and I start getting ideas. It will get me from 3% to 8% ownership, but the biggest motivation is the jump in bonuses.

awstick said:     Each asset you hold costs an additional $40 per year.  

Probably stating the obvious, but: to minimize fees, you can have IRA hold just a single asset, e.g., an LLC. Then you can have LLC buy as many assets as you want.

Also keep in mind that there's a charge by the custodian each time you buy or sell an IRA asset, another reason to layer cake as above.
  

debentureboy said:   For $30K, it doesn't seem worth it to me. You get pretty favorable tax treatment with a stock like this -- assuming you keep it over a year. If the company goes belly up, then you get to take the loss off your taxes (against other investment gains) -- so you essentially recover some of your money.  If you put it in an IRA and it goes belly up, you get nothing.

For a small company stock, $30K doesn't seem like a lot of ownership (I'm assuming... you know what happens when you assume). You may end up wanting considerably more equity as your salary goes up, the company grows, you get a new role, etc. It would seem to me that having it all just personally owned would be convenient.

Does the company allow you to use your stock as collateral against a bank loan?  Some closely held companies will allow you to use their banking relationship to finance your stock purchase.  If they do and you'd like to use this option to finance additional stock, then it is unlikely the bank will allow you to hold the stock in an IRA.  

My advice is to let your other stocks grow tax free in the Roth and your net difference in total return is pretty small (company stock in Roth versus company stock owned in a taxable account).  I'm in to "easy".  Part of "easy" for me is to use IRAs for stocks I'll go in and out of, reinvest dividends, etc.  For stocks I'll hold for a long time, I try to keep those in a taxable account where I don't have to keep / track records so much and still get fairly favorable tax treatment. 

Others here try to squeeze more off of their taxes.  God bless.  They've got their way, I've got mine.  

  
You actually can writeoff Roth IRA losses, which can be quite beneficial in a total loss situation.  It's even better than a capital loss in that you can take the entire loss in one year, instead of $3,000 a year over many years.  You have to close the account and any other Roth IRAs you have and you are entitled to a miscellaneous itemized deductions equal to the difference between your contributions and the amount recovered.  So if the company goes bust you get a tax writeoff, if it goes way up your profit is tax free.
 

awstick said:   You actually can writeoff Roth IRA losses, which can be quite beneficial in a total loss situation.  It's even better than a capital loss in that you can take the entire loss in one year, instead of $3,000 a year over many years.  You have to close the account and any other Roth IRAs you have and you are entitled to a miscellaneous itemized deductions equal to the difference between your contributions and the amount recovered.  So if the company goes bust you get a tax writeoff, if it goes way up your profit is tax free.
 

  True, but let's hope you don't have to wipe out years worth of Roth contributions just to get a misc itemized deduction that has several chances to turn out to be worthless. 

Generally speaking, the tax-loss-harvesting benefit is an option on the volatility of the stock, especially in the near term when you make your first purchase.  It's worth something, but if you think it's more likely that option is in the money than the "tax-free gains" option, you should really be thinking twice about buying the stock.

mrmonty said:   
debentureboy said:   For $30K, it doesn't seem worth it to me. You get pretty favorable tax treatment with a stock like this -- assuming you keep it over a year. If the company goes belly up, then you get to take the loss off your taxes (against other investment gains) -- so you essentially recover some of your money.  If you put it in an IRA and it goes belly up, you get nothing.

For a small company stock, $30K doesn't seem like a lot of ownership (I'm assuming... you know what happens when you assume). You may end up wanting considerably more equity as your salary goes up, the company grows, you get a new role, etc. It would seem to me that having it all just personally owned would be convenient.

Does the company allow you to use your stock as collateral against a bank loan?  Some closely held companies will allow you to use their banking relationship to finance your stock purchase.  If they do and you'd like to use this option to finance additional stock, then it is unlikely the bank will allow you to hold the stock in an IRA.  

My advice is to let your other stocks grow tax free in the Roth and your net difference in total return is pretty small (company stock in Roth versus company stock owned in a taxable account).  I'm in to "easy".  Part of "easy" for me is to use IRAs for stocks I'll go in and out of, reinvest dividends, etc.  For stocks I'll hold for a long time, I try to keep those in a taxable account where I don't have to keep / track records so much and still get fairly favorable tax treatment. 

Others here try to squeeze more off of their taxes.  God bless.  They've got their way, I've got mine.  

  I agree with you mostly. Its just that I recently helped my brother set up a business with most liquid assets that I had and then, this offer from the management comes up. So, I have this old IRA and I start getting ideas. It will get me from 3% to 8% ownership, but the biggest motivation is the jump in bonuses.

  
So you're buying 5% of the company for $30k?  Implying the total equity value of the business is only $600,000 (or in that ballpark if you're buying in at a bit of a discount)?  That is... very small.  

Still, I'm all for doing it if the $30k investment will really boost your annual bonus by $40k, but that sounds very fishy.  Something is not adding up.  Does the company actually need $30k from you?  If so, that would be a big red flag.

check out this company if you're still looking: www.theentrustgroup.com

edrucker said:   So you're buying 5% of the company for $30k?  Implying the total equity value of the business is only $600,000 (or in that ballpark if you're buying in at a bit of a discount)?  That is... very small.  

Still, I'm all for doing it if the $30k investment will really boost your annual bonus by $40k, but that sounds very fishy.  Something is not adding up.  Does the company actually need $30k from you?  If so, that would be a big red flag.

  Sorry, hadn't checked back for a bit. Actually, I need close to $55k to get there. $30k from the IRA and $25k from savings. The bonuses are dependent on the profit margin, and 5% gets me that much if the profits will be in line with what they have been for the last 3-4 years. The company does not want my money, they are just offering ownership. If I pass, it will go to the next guy in the scheme of things.

You don't say whether your company has done an SEC registration. If it has not done the SEC required filings for at least a private offering, the necessary paperwork for the stock to qualify for a IRA probably hasn't been done. Not every stock that trades is eligible for purchase by a Roth IRA.

nsdp said:   Not every stock that trades is eligible for purchase by a Roth IRA.
  This is a completely false statement.  If you disagree, please provide Internal Revenue Code cite or other authority.  Thanks.

mrmonty said:   EDIT: Thanks for all the answers. I am in my early 30s and am a critical employee/owner. ...
  
The above statement screams of running afoul of the rules regarding self-dealing and IRA accounts. I would seek the advice of a tax accountant or lawyer before using IRA funds to invest in a company where you are an owner or have a controlling equity interest. 

Self dealing isn't usually a problem as long as your stake is below 50%

codename47 said:   Self dealing isn't usually a problem as long as your stake is below 50%
  That is exactly what I was told by Equity Trust, when I called them earlier today.

I've looked more into this and hope I can get a response in this thread instead of starting another. My ideal structure for my own self-directed IRA would be to own a portion of an LLC. I own part of the LLC, but the total ownership will be less than 50% for myself and any members of my family. The LLC invests in real estate, and will have loans that may need to be guaranteed by me.

I've found a recent court case that worries me.  Peek v. Commissioner held that the act of guaranteeing a loan is indirectly extending credit to the IRA, which is a prohibited transaction.  In this case the taxpayer was a 50 percent owner, which is the cutoff for the entity to be considered a disqualified person.  I cannot find a reference in the case to whether the fact they owned 50% and not 49% was important however.  My reading of code section 4975 seems to indicate that although I am a disqualified person with regard to my IRA, my LLC is not a disqualified person unless the combined ownership of my family and I is at least 50%.  I think I'm still safe but I'm a bit worried about pulling the trigger on this.

@awstick --

Although not entirely free from doubt, I think the case is consistent with the notion that since the IRA Holder is a DQP with respect to the IRA, then any loan/guarantee by the Holder that indirectly benefits the IRA is a prohibited transaction. There would be a benefit to the IRA regardless of the Holder's personal ownership stake in the LLC. For example, even if the Holder had ZERO direct/attributed ownership, a loan/guarantee by the Holder would still be a PT.

 



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