Establish, Seek, Vet and Fund

Establish, Seek, Vet and Fund

I recently attended a high-level Mastermind with some extremely successful entrepreneurs.  Over the many years that I have been friends with some of these individuals, it’s become clear that for some of them, their focus and priorities are shifting.  More attention is being given to making sure they are fully funding their retirement account options.  More than one of these high-performing business owners admitted the need to be more diligent about getting the correct accounts opened and funded, and then getting those funds implemented into deals.

If you want to do self-directed investing, the first step is to establish an account that will allow you to self-direct.  The establishment phase has three elements:

  1. Select the correct custodian.
  2. Select the correct type of account.
  3. Open and fund the account.

Because retirement accounts can be opened without putting money into them, it’s important to make sure you fund the account.  Several important things can begin once money is put into your newly-opened account.

Once your account is established and funded, it is imperative that you seek deals in which you can invest.  Part of that seeking is remaining open to the possibility of deploying your funds with someone else rather that trying to do deals all by yourself.  For example, instead of using your account to buy a house, fix it up and resell it, you and another investor might want to jointly lend money to someone else who is doing the buying, fixing and reselling.  I am currently doing both, and I greatly prefer the latter.

The vetting phase is incredibly important.  Once you find an opportunity that you believe is a good deal, you must do adequate due diligence on multiple aspects of the deal.  You must first verify that it does not involve a prohibited transaction or a disqualified party.  That is only the beginning.  Too often, I see people who don’t take the time to make sure the deal is really a good investment because they are in too big a hurry to get their money deployed.  They feel guilty about those dollars just sitting in their account and want to be able to say they have done a deal.  It’s better, however, to let your money sit while looking for a good deal that to put your money into a questionable deal just to say you have it invested.

Once you have done the appropriate due diligence on an investment for your self-directed retirement account, it is all about arranging for the actual funding of the investment.  The best way to think of this is that the cash in your account is exchanged for a different asset, like when you go to the store and exchange a couple dollars in your wallet for a candy bar and a soda pop.  You are exchanging the dollars in your IRA for a piece of real estate, a promissory note, a tax lien, or the membership interest of an LLC or trust, to name a few possible examples.

Finally, make sure you completely understand how the investment will be made and properly documented to be a good deal, both now and in the future, for your retirement account.

I hope these ideas help you move forward with your goals for your self-directed account.