Question:

I am interested in investing a small portion of my Roth IRA into an oil drilling project.   I understand the potential risk of loss and am willing to take that risk.  There is substantial opportunity for profit which I would like to shelter from taxes to the extent possible.

Can you tell me:

1.  Is this an acceptable Roth Self Directed IRA use?
2. If so, how long will it take to set up such an IRA if I transfer assets from an existing Roth IRA?
3.  Any idea’s on cost to do this would be appreciated.

Answer:

1. Yes
2. 24-48 hours for us to set up the Roth IRA, and however long it takes your current custodian to process the transfer request (typically 2-3 weeks, unless you move the money by doing a 60 day rollover, which is faster but only can be done once per year per source of funds)
3. $50 to set up the Roth, $95 transaction fee, $30 for a wire or $5 for a check, and an annual administration fee which is either a flat $295 or is based on the value of the account (I have attached our fee schedule for your reference)

The only other thing you should be aware of is that if you take a working oil and gas interest into your Roth IRA then the investment may subject your IRA to Unrelated Business Income Tax (UBIT), whereas a royalty interest would not.  You didn’t mention if your proposed investment was a working interest or a royalty interest, and we don’t give tax, legal or investment advice, but I wanted to make you aware of the issue in case it was important to you.  You can find out more about this topic by reviewing IRS Publication 598.  Please note that just because something may cause your IRA to owe taxes does not mean you shouldn’t do it.  You simply have to take taxation into account when making a decision.  After all, if the after tax revenue from the investment still is a very good return, it would be foolish to not make the investment simply because of the UBIT implications.

I realize the answer to this email may cause more questions, and you may call our offices on Monday and either speak with Nathan Long (800.320.5950 ext 117) or Ryan Kimura (214.800.3488)  in our Dallas office.  Good luck with your investment!