Self Directed IRAs and Secondary Market Annuities

Self directed IRA’s are needed when making investments in Secondary Market Annuities with qualified funds.

Secondary Market Annuities can easily be purchased with qualified retirement funds utilizing a Self Directed IRA account.

Qualified funds may be in a Roth, a 401K, 403b, a Simple IRA, or other qualified vehicle.  To buy an SMA using qualified funds we need to utilize a self directed IRA.  Many self directed IRA custodian options exist but we work with one almost exclusively who has experience in the asset class and offers great service at a low cost.

Rolling funds over from one custodian to a new one is a very simple process, but it can take a week or two.  For clients who are planning to use qualified funds, it often is best to open the self directed account first, even before you reserve a deal.

Using Self Directed IRA’s With Secondary Market Annuities

GSTC Full Logo smallWe have worked with several self directed IRA custodians in the past, including Provident Trust Company and IRA Services, however Gold Star Trust is head and shoulders above the other two in terms of speed, service, and low cost. They are doing a great job for us and we recommend all customers use them. Their paperwork will be shown in the video demo.

Download “SDIRA Questionnaire” Shown In This Video

Download “Gold Star Trust Traditional IRA Documents” Shown In This Video

Download “Gold Start Trust Roth IRA Documents” Shown In This Video

There are four steps in an SMA/IRA transaction:

  • Open the Gold Star IRA Account– pages 1-4 AND page 8 of the IRA Application kit
    • Gold star will open an account with $0 transferred in. There are nominal account establishment fees ($65 annual/$25 opening) that can be paid by credit card.
    • Typically there is no need to open the IRA until an SMA is court approved.
    • Page 8= wholesale rep form. This authorizes us to communicate with, but not direct, Gold Star regarding your SMA purchase.
  • Fund the Gold Star IRA- pages 5+6, IRA Transfer/ Rollover documentation
    • This moves money from the current custodian to Gold Star.
    • Depending on the current custodian and the investments held, this might take 2 days or 4 weeks. It might require additional documentation such as notarized or medallion stamped signatures, and it may require time for currently held investments to sell and for trades to settle out. Also, some custodians may not wire, and may only send a check.
    • All these factors determine when you need to initiate the rollover/ transfer. Ideally, you wait until your SMA is court approved, then initiate transfer of funds to Gold Star, however there may be situations depending on your current custodian where you need to start money moving earlier.
  • Buy the SMA- Direction of Investment form, page 7
    • There is a space on the form for the case ode (Example 2A010216A-1), and for the exact purchase price
    • The best practice for people who know they are buying an SMA but don’t know which SMA yet, is to send in a signed DOI form right at account opening, leaving the case code and $$ blank- Gold Star will fill this in once you identify an SMA
    • Alternatively, if you know which SMA you are buying and it’s been court approved, fill in the code but leave the price blank, as that is not known until right before closing, and Gold Star can fill that in.
  • Closing book
    • In SMA transactions with IRA funding, we supply you with the closing book for your review prior to funding
    • Once you review and approve, by email or call to us or to Gold Star, Gold Star signs the Absolute Assignment and the Servicing Agreement on your behalf as custodian, and wires money from your account to purchase the SMA
    • Closed/Funded/Complete

About Self Directed IRA’s

Self directed IRA’s are simply IRA’s held by a custodian that permits you to direct your own investments- you can chose to buy SMA’s, real estate, or any other sort of investment.  A self directed IRA custodian will not offer you investment advice- they just ensure the account is in compliance with the IRS.

By contrast, many IRA’s held by brokerages like Schwab or Fidelity let you pick from only a few Fidelity or Schwab mutual funds- they are restricted and captive, and may  offer traditional stock picking advice.  Read about self directed IRA’s here.

Best Cases For Qualified Funds

IRA’s are designed to offer tax deferral for investors saving for retirement…. and they are designed to be SPENT in retirement as well.  Most investors can’t touch the money in their IRA’s for a long time, and too often, people shoot for income contracts in an IRA and produce income (and return of principal) that they can’t take out.  Instead, take advantage of these deferred interest rates and consider deferred lump sum cases.

RMD Details

Holding SMA’s in a qualified vehicle requires the custodian to calculate the Required Minimum Distribution (RMD) each year.  Be aware that long term deferred SMA contracts in qualified vehicles for investors over 70.5 years of age may be subject to RMD’s yet not produce cash flow.  Advisors should be sure there is sufficient money for RMD’s when using deferred contracts in IRA’s