Effective early in 2022, Rocket Dollar is introducing a new direct custody product that will allow customers to choose the pricing plan that best fits their investment interests.
Direct Custody is where an IRA custodian helps purchase an asset for you that might be difficult to acquire on the NYSE, Nasdaq, or a brokerage like Fidelity and TD Ameritrade. All investments acquired must either come through a direct integration channel or be approved by our custody partner.
This works well for passive investments, real estate funds, VC funds, Hedge Funds, and private equity funds. Your investment issuer team may have already completed multiple deal reviews with other custodians or maybe a previous Rocket Dollar customer. Once an investment is approved, other follow on investors can generally get accelerated deal approvals.
Rocket Dollar will continue to develop integration solutions with our investment partners to provide quick and easy access to select investment options. Investments WITHOUT an integration can still be selected, in which case members must be prepared to work with the investment issuer on investment documentation, and escrow/funding information will help our custody partner send retirement dollars from your IRA to the investment.
This product will be available on both Gold and Silver (formally known as Core) membership levels.
How is Direct Custody different from bank control/bring your own deal?
Direct Custody works the best with experienced investment issuers and “run of the mill” alternative investments. A VC or real estate fund may be new to you, but this is a trendy investment that an IRA custodian can review, look over deal documents, and understand everything about the investment. Popular direct custody investments may…
- Be passive. The investor has little to no control over the direction of the fund or opportunity. Investment management professionals handle all day-to-day operations of the investment.
- The investment issuer will have organized subscription documents, also referred to with nicknames like sub docs, PPM (private placement memorandum), and sometimes an operating agreement that describes how the business works.
- Be simple to execute on. The IRA custodian can send one major transaction to start the investment, as well as occasionally capital calls.
If your investment drastically differs from the points above, you might need to consider a bank control IRA, also known as a “BYOD/bring your own deal IRA.” The primary distinguishing feature between direct custody and an IRA LLC is the deal review process.
With direct custody, all investments must be reviewed by the custodian in an effort to minimize the potential risk of making a prohibited transaction(s). Although this may be a lengthy process for certain investment options the deal review process provides safety and certainty for most investors. For IRA LLCs you are the manager and owner of the LLC, so you decide what to invest in without going through the deal review. Bypassing the deal review process allows investors to invest in asset classes that are not custodian approved, might be more complex to execute and manage, or might be so new that a custodian might not be intimately familiar with your investment objectives. To determine which product is best for you please see our previous article.
For California residents
With this new direct custody product, California customers will find this product more appealing than our IRA LLC because of tax savings. Because of high LLC taxes from the California Franchise State Tax Board, going with direct custody can keep your IRA cost-effective.
For our California customers starting a new IRA, it is now available at our Silver price level. Since there is no LLC, you will not have any California LLC taxes.
I’m not familiar with Direct Custody, I’ve only known IRA LLC. Why is Rocket Dollar creating this?
Rocket Dollar is fulfilling the need for customers who do not need an LLC to acquire their alternative investment. The combination of a simplified investment process, along with tech integrations over time, will make alternative investments easier to access and invest in. Bank Control IRAs and Direct custody IRAs have long been expensive and difficult to use for the average investor. Rocket Dollar’s team of developers is constantly and diligently working to improve our user experience in an effort to remain competitive and accessible. For investors that are very active, executing on complex or personal network deals, or simply prefer it, we will continue to offer and refine the IRA LLC.
Will anything change about my pricing?
Existing IRA LLC Rocket Dollar will not have their current pricing affected. Direct custody customers must remain in their existing custodian arrangement.