Pursuing Socially Conscious Financial Independence through Self-Directed IRAs & Solo 401ks – Part II

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Upon learning about self-directed IRAs (SDIRAs) while attending a Slow Money NorCal meeting in San Francisco, I realized these accounts offered a mechanism to pursue socially responsible investing (SRI) with my retirement funds in a way that was far more meaningful than simply putting money into SRI and Environmental, Social, & Governance (ESG) mutual funds. Once I settled in Florida I identified a custodian company and moved 75% of my retirement $$$$ into a checkbook LLC SDIRA. In this post I will share the details about how I opened and manage my SDIRA account. (If you are unsure what a SDIRA is check out my previous post.)

Selecting a SDIRA Custodian Company

Readers of this blog have already gathered that I prefer to invest my money in a regenerative vs. extractive economy and much closer to Main Street than Wall Street. That line of thinking even influenced my decision about with which custodian company to open my SDIRA. I researched some of the larger more well-known SDIRA companies and found numerous negative online reviews for them citing bad customer service, incidences of lost documents, and long wait times to get transactions reviewed and processed. In the midst of all of this I also discovered Advanta IRA, a custodian company based in my area.

The online reviews I found for Advanta IRA were quite positive and they have an A+ rating with the Better Business Bureau. I was also impressed How to Choose a Self DIrected IRA Custodian Companywith the educational materieals on their website as well as the webinars available on their YouTube channel. I attended a few of their on-site SDIRA workshops and spoke with a few of their staff members as well. I found it helpful and reassuring to be able to sit down with them in person and ask my questions. And of course I liked that by choosing them I’d be keeping my money local – so I went ahead and opened my account with Advanta IRA.

Nuts & Bolts of Opening My Checkbook LLC SDIRA

This is as good a point as any to remind my readers of my disclaimerI am not a certified financial planner and I’m definitely NOT your certified financial planner. All information presented here is for educational purposes only. Do your own due diligence prior to opening any self directed retirement account. And before deciding if one of these accounts is right for you, consider consulting a tax advisor first.

Being that I am not trained in finance or business my primary investing strategy to mitigate the risk of losing a large amount of money is to make many small investments. For that reason I decided to go through the extra hurdles and up front expense of establishing a checkbook LLC SDIRA to avoid paying the custodian company’s customary transaction fee each time I buy and sell an asset.

Because I stopped working a traditional job and contributing to my employer based retirement accounts back in 2013 I was able to roll over funds from those employer-based accounts held with TIAA to fund my new SDIRA. (From what I understand it is not possible however, to rollover funds from a company sponsored retirement account that you hold through a current employer.) Even though Advanta makes it easy to complete the necessary documents online to open a SDIRA, I opted to go into the Advanta office in person to open my account. Advanta staff assisted me in filling out the forms and communicating with TIAA by phone to make sure the process was handled properly and efficiently. I paid Advanta a one-time fee of $50 to open the account.

After I opened my SDIRA I then formed a single-member LLC with my IRA as the sole member and appointed myself as the manager of the LLC. I also paid Advanta a one time $95 asset purchase fee for the purchase of the checkbook LLC as an asset held in my SDIRA.

I believe it is possible to complete the paperwork necessary to legally register an LLC on one’s own, but I chose to hire someone to assist me with this process having never done anything like it before. Advanta provided me with a list of attorneys in the area with experience establishing and registering LLCs for checkbook SDIRAs. After Advanta had processed my paperwork and while I was waiting for the funds to be rolled over from TIAA into my Advanta IRA account I went ahead and started working with an attorney from the list to complete and file the LLC paperwork on my behalf.

Documents to Open Checkbook LLC SDIRA

The attorney charged me $720 total, which consisted of his fee of $595 plus the $125 he paid directly to the state to file the LLC’s Articles of Organization. I was very pleased with this attorney. He has been kind enough in the ensuing years to answer a few basic questions via email for no additional payment regarding the registration of this LLC.

Once the LLC was legally registered Advanta IRA prepared a check made out to my new LLC for the total amount in my SDIRA. I could have taken that check and opened a business account with any bank, but yet again I elected to put my dollars to work locally. I drove straight over to a local credit union and opened my checkbook LLC business checking account.

One thing to note is that SDIRAs may not apply for a credit card, as the process entails giving a personal guarantee to the card. This is considered a prohibited transaction (which was covered in the last post). When making investments or handling any other payments related to this LLC account I either pay by check or online bank transfer.

Ongoing SDIRA Expenses and Account Maintenance

To keep the LLC legally registered in the state of Florida I spend approximately $140 annually and submit an annual report to the state’s Division of Corporations. The only money I pay Advanta IRA now is their base annual account fee of $295. For anyone curious about Advanta’s rates for other services you can check out their fee schedule here.

Each year SDIRA holders are required by the IRS to submit Fair Market Valuation forms summarizing the combined value of all of the assets owned by the IRA. Once I’ve tallied the estimated dollar value of my investments and LLC bank account I sign and send the completed form to Advanta, which then submits it on my behalf to the IRS. This process will become more cumbersome (and costly) when I near 70 ½ years of age and need to prepare to start taking required minimum distributions. At that time it will be necessary to work with appraisers or other licensed professionals to ascertain a much more precise value for each asset owned by the LLC in advance of taking those distributions.

If I wait until I reach 70 ½ years of age to take a distribution from my SDIRA, which I intend to do, Advanta will not charge a fee for the processing of those required distributions. Because I have gone the checkbook LLC route it will be necessary to go through the additional step of first transferring the funds to be distributed from my SDIRA LLC to Advanta and then Advanta will send the distributed funds to me personally. If I ever do take a distribution before reaching that age Advanta will charge me .05% of the amount being distributed with that amount being capped at $250.

Tracking SDIRA Investments – My Achilles Heel

My SDIRA accounting records present an area for tremendous improvement. Creating and maintaining electronic spreadsheets is not a personal strength of mine. That combined with my lackadaisical approach to monitoring and tracking my investments has left me at the less than ideal place of simply writing out some key information on pieces of paper that I store in a file folder including the name of each company and the dollar amount I invested as well as passwords for online accounts. Of course I also review my investments yearly to determine the value of each asset when I submit the Fair Market Value Form.

SDIRA investment tracker

What I wish my SDIRA accounting records looked like. Photo credit: Lukas from Pexels

Almost three fourths of the investments I have made (and I will go into more detail on those in my next post) in the two years I have had my SDIRA are either investments made in startups through a crowdfunding platform that won’t begin paying off for at least five to seven years; in alternative assets that don’t pay regular dividends; or have values that can’t be easily tracked like stocks and bonds. It’s very easy to search online and find spreadsheet templates for tracking those traditional investments, but it’s challenging to develop such a document for SDIRA users since these accounts hold such a wide range of assets and the value of these assets isn’t so easily tracked and updated.

I searched a good bit online before eventually finding that RocketDollar, one of the newer self-directed investing companies, offers an online SDIRA tracker to clients. I haven’t seen it, but after speaking with a company representative my understanding is that the tracker is primarily based on information compiled for the Fair Market Value form. It is a good start, but I hope as more and more people begin investing through SDIRAs and Solo 401ks that new trackers will be developed that can better capture and compute the details of a variety of investments.

Two Years of Hindsight: SDIRAs vs. Solo 401ks & Planning For Those Distributions

Overall, I am very happy with Advanta IRA and the investments I’ve been able to make through my SDIRA. That said, after learning more recently about Solo 401ks I do believe them to be easier to use and suspect it would have been an even better option for me to open one of those instead. I now wish that before opening my SDIRA I would have inquired along the way about whether or not any other self-directed retirement account options existed that could suit my needs as well. I didn’t ask because having reached 44 years of age before ever hearing about SDIRAs I presumed that nothing else beyond them existed in this space – my mistake!

I have also learned along the way that with self-directed retirement accounts it is especially important to start with the end in mind. Self-directed retirement account companies are doing a fantastic job of preparing materials to educate people about how to open and invest through these accounts, but they produce very little on planning the eventual distributions from these accounts. I was told by a senior level executive in the industry that it is essential to think about what your exit strategy will be for each investment before you make the investment. During that same conversation, said industry leader informed me that self-directed retirement account companies are intentionally NOT educating people about this as they have very little incentive to do so since these companies earn their money by holding onto and managing the assets in the accounts.

In a 2012 guest post on The Military Dollar Eddie Wills relays a similar observation about mainstream retirement accounts as well –

My best guess is that the financial services industry makes the lion’s share of its revenue (commissions and fees) when our retirement accounts are accumulating money, and that they have very little financial incentive in helping us choose the most efficient path to draw our account values down to zero at the optimal actuarial time (the moment our earthly bodies assume room temperature).”

Luckily for people investing through those mainstream (employer-based or brokerage firm) accounts, they are working with a more limited selection of assets and numerous independent personal finance experts are producing content discussing drawdown strategies for these accounts. With self-directed accounts we are investing in a much broader range of assets, each with their own best distribution strategy. Plus, many of these investments (think start up investing through crowdfunding sites like are less commonly held in retirement accounts so less thinking and planning have likely been done on how to think about this investment in terms of a best time and way to “distribute” them.

SDIRA distribution strategy

Barring anything unforeseen I am still twenty years away from taking a distribution from this account. To date I have no qualms about the investments I’ve made and how easily “distributable” they will be when I need them, but I do now think about this more before making an investment and hope to see more information and discussions appearing on this topic to educate me and others in the future.

Next month I will delve into each of the investments I’ve made so far through my SDIRA as well as the hiccups I’ve encountered and other lessons learned along the way.

What About You???

Are you considering or have you already started investing through a self-directed retirement account as a way to align your values and your investing dollars? What are your thoughts, questions, or concerns about doing it?

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