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What is a Self-Directed IRA Custodian?

The Self-Directed IRA custodian is one of the most important things to consider when starting a plan. Not all custodians are the same! A lot depends on what you want to invest in, how hands-on you want to be and how much you want to spend. Different custodians offer different services. Further, the fee structures also vary based on the type of Self-Directed IRA you choose.

What is an IRA Custodian?

By law and pursuant to Internal Revenue Code (IRC) Section 408, you must set up an IRA at a bank or other financial institution, or authorized, state-regulated trust company. The IRA trustee, or custodian, is the company that administers the plan. They are essential to maintain the tax advantages of the plan. Traditional plan assets are tax-deferred, meaning you don’t pay taxes until you withdraw funds. Roth plans are funded with after-tax money and all investments grow tax-free.

The custodian holds the account’s investments for safekeeping. Further, they ensure the plan follows all rules set forth by the government , in particular, the IRS. Failure to adhere to these rules may lead to the disqualification of the IRA. If that happens, you lose all the benefits of investing with an IRA.

Why Do You Need a Special Self-Directed IRA Custodian?

As we mentioned, not all Self-Directed IRA custodians are the same. You can go to virtually any bank or financial institution to open a Self-Directed IRA. However, most “big box” custodians will limit what you can invest in. Many only allow for traditional investments, such as stocks and mutual funds. Therefore, you will need a special custodian, such as IRA Financial, if you want to invest in non-traditional assets, also called alternative assets. These include real estate, precious metals, cryptocurrencies and hard money loans.

Traditional institutions don’t make money when you buy alternatives, like real estate. They make their money by selling you traditional investment products or by holding onto your cash. On the other hand, Self-Directed IRA custodians make their money by simply setting up the plan for you, and by low annual administration fees.

Generally, a Self-Directed IRA custodian will not try to sell you a product. Further, they do not offer investment advice. Essentially, they maintain the plan for you and give you the freedom to invest in whatever you see fit. Of course, you should always consult with a financial advisor to make sure your investments fit your personal goals.

Choosing the Best Self-Directed IRA Custodian

Choosing your custodian involves many factors. The first question you should ask is if they are a member of the Retirement Industry Trust Association (RITA). RITA is the organization that is responsible for the continuing education of all regulated Self-Directed IRA custodians. The best of the best custodians are members of RITA.

Next, you want to ensure they know what they are doing! Expertise in all matters of self-directed plans is imperative, especially checkbook control. Checkbook Control gives you, the investor, the freedom to make any IRS-approved investment anytime you want! Alternatively, custodian control will allow you to make alternative investments, however, you have to get your custodian’s consent before investing. This can cause needless delays. Obviously, your custodian should be well versed on all IRS rules concerning IRAs.

Lastly, you should know the fee structure of the custodian you choose. Here at IRA Financial, we feel you should never pay asset valuation fees. You should not have to pay more because of successful investments. There should only be one, flat fee you need to pay to maintain the plan, no matter the account balance. Lastly, there shouldn’t be a minimum balance requirement. Everyone is entitled to make the most out of his or her retirement savings. Self-Directed plans are not just for the wealthy!

Putting it All Together

Choosing a Self-Directed IRA custodian should not be taken lightly. You do not want to randomly pick one based on little information. The cost for setting up a Self-Directed IRA will vary greatly. Just because one is cheaper (or more expensive) does not tell you anything about their service, expertise and experience. Do your homework before signing up.

A short list of what to look for:

  • Are they a member of RITA?
  • Do they allow checkbook control?
  • What type of investments do they allow?
  • Do they have experience in the industry?
  • What is their fee structure?
  • Are they trying to push products on you or offer investment advice?

Finding the right answers to these questions are critical in choosing the best Self-Directed IRA custodian. Work with a qualified financial planner, do you research, and educate yourself before choosing a custodian.

If you have any questions about picking the right Self-Directed IRA custodian, feel free to reach out to us at 800.472.1043. We’re here to answer any questions you may have and there’s never an obligation.


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