A self-directed IRA puts you in the driver’s seat. It allows you to invest in what you know best and opens up many more investment opportunities to diversify your retirement portfolio. However, you don’t do it alone. When you set up a self- directed IRA, you establish it with a custodian or a financial institution, and choosing the right custodian is an important task.
What is a Custodian?
A custodian is the person or entity who facilitates the transactions. They are an essential element of your IRA. Custodians can hold title to client assets, investments and property, and issue funds, and are subject to regulatory oversight and audits. According to IRS regulations, “all IRAs must be held by a custodial entity such as a bank, credit union, trust company or an entity that is licensed and regulated by the IRS as a ‘non-bank custodian’.”
Self-directed IRA custodians are unique in that they allow alternative investments, which is different than a custodian that only offer traditional investments, like mutual funds, stocks, and bonds. With a self-directed IRA, you can invest in a wide range of alternative assets, including real estate, promissory notes, oil and gas, and private placements in your retirement account.
Sometime people are confused between IRA custodians and promoters. An IRA promoter is a third-party provider that focuses on promoting investments, but does not have the regulatory oversight or authority to hold investments or move IRA funds like a custodian. They may also be limited by what they can offer and must have ties to a custodian who can make these transactions for you. It’s another middleman that adds time, paperwork, and fees to each transaction you want to make. When you’re searching for a custodian, make sure it’s an actual custodian or administrator and not merely a promoter.
How Do You Know If a Custodian Is Right for You?
There are a few things you want to compare when seeking your Self-Directed IRA custodian:
- Experience – How long have they been in business? Are they experienced in Self-Directed IRAs? Look for third party endorsements, achievements, and performance awards. Check the reviews of the potential custodian and see if there have been any complaints filed against them.
- Access – How easy is it for you to get in touch with your custodian? How fast can you process a transaction and make an investment? How are accounts managed? Is there an online account management system? How are investments processed?
- Investment Choices/Options – Do they offer the type of investment knowledge and resources that you need or are interested in? Also, some Self-Directed IRA custodians may not allow certain investment options. Make sure you choose one with a wide range of types of investments.
- Knowledge – Do they provide ongoing education? Can you contact them with specific questions? Who answers your questions and what are their qualifications?
- Technology – Is the technology platform the custodian uses efficient and easy to use. Look for a custodian that offers advanced technology solutions such as the ability to submit investments online, as well as manage your account.
- Fees – Finally, compare providers by their fees. It’s important to find a custodian who is transparent about their fees and provides full disclosure. Custodians may charge administrative fees, transaction fees, or fees for special services. Ask if there are any hidden fees, maintenance fees, or costs for uninvested cash. Ask if you’ll be charged for each transaction, a flat fee, or on the value of your account. Ask about billing cycles and request a list of all potential fees.
Choosing your Self-Directed IRA custodian is perhaps the most important decision you will make with respect to your account. Take the time to research your options and contact each potential custodian and ask them your questions. Do they feel accessible, knowledgeable, and have a transparent fee structure? While you can always rollover your account to a new custodian, it’s better to do your research upfront to avoid the hassle, lost time, and fees associated with the move.
Quest Trust Company is one of the top ranked self-directed IRA custodians in the country. We would be happy to show you our process, demonstrate our experience, and compare our fees to any other custodian. Schedule a consultation with a Quest Trust Company IRA Specialist today.