Can I Be My Own IRA Custodian?
Custodians or retirement account administrators are necessary for all IRA accounts, including self-directed ones. But not all custodians offer equal services when handling alternative investments such as real estate and private mortgage notes.
Discover a custodian who specializes in self-directed IRAs and understands IRS regulations regarding investments like collectibles or precious metals that are prohibited, thus helping avoid costly errors that could incur penalties or taxes.
What is an IRA?
Custodians for Individual Retirement Accounts are banks, financial institutions and approved trust companies authorized by the Internal Revenue Service to hold your retirement assets safely. Furthermore, these providers must inform you about prohibited transactions and potential fraud red flags.
Self-directed IRAs allow investors to diversify their portfolio beyond what a standard brokerage firm would provide, including real estate, precious metals, commodities, private placements, promissory notes and tax lien certificates.
Self-directed IRA custodians must fulfill the same duties as brokerage firms, reporting fair market values annually to the IRS. Some custodians are better equipped than others at handling these tasks; business size and experience handling alternative assets may provide insight as to their capabilities; Madison Trust boasts over $4 billion in custodial assets with 15,000 clients utilizing an experienced team that has completed rigorous CISP training as well as having knowledge across asset classes.
How do I open an IRA?
As part of the process of opening an IRA, applicants typically complete a new account application and provide tax information and personal details on themselves and any required minimum contributions or fees; when selecting their custodian they should compare costs and services to find one best-suited to them.
Investors should carefully assess their investment options with any custodian, as alternative investments like private placement securities, real estate and cryptocurrency may provide higher returns and diversification benefits than traditional stocks and bonds. Some custodians specialize in these alternative asset classes while others may offer only limited selection of asset classes.
Investors wishing to transfer funds out of an existing IRA should consult the IRS list of approved custodians and non-bank trustees. Most of these financial institutions specialize in managing self-directed IRAs; some charge additional fees. Custodians who allow alternative asset transactions will have LLCs structured according to ERISA guidelines for accommodating transactions that conform with them.
What are the fees for opening an IRA?
Before opening an IRA, investors should carefully examine the fees charged by custodians and providers. These may include one-time setup charges, variable broker transaction fees and annual LLC membership dues.
Self-directed IRA custodians do not make money by selling investments or acting as banks; rather, they charge account management and maintenance fees that cover the costs associated with providing custody services and complying with IRS regulations.
Self-directed IRA custodians differ significantly from brokerage firms when it comes to their business models and revenue generation strategies. Brokerage firms largely rely on commissions and management fees from selling investment products as their source of income, while self-directed IRA custodians instead rely more heavily on fees from managing accounts themselves for revenue generation.
Traditional IRAs invest in stocks and mutual funds; those owned by self-directed custodians may invest in any permissible asset, including nontraditional ones like real estate and precious metals that require manual processing; thus increasing administrative burden for custodians and making most brokerage firms unwilling to provide this service.
How do I invest in an IRA?
Researching your custodian is essential when selecting one. Check their registration with the Securities & Exchange Commission, Financial Industry Regulatory Authority and your state’s regulatory body; examine their licensing, registration and reputation with these bodies as well as customer service quality. Understand their fee structure carefully as this could have a major impact on returns – at IRA Financial we believe Self-Directed IRA custodians shouldn’t charge asset valuation fees or increase fees as your account grows!
Traditional and Roth IRAs are typically custodied by banks, brokerage firms and mutual fund companies that limit investment choices to marketable securities such as mutual funds, exchange-traded funds and publicly traded stocks. Specialized Self-Directed IRA custodians like IRA Financial allow you to invest in non-traditional assets like real estate, private equity investments, startups or promissory notes; providing more investment options at lower fees with greater flexibility than traditional IRAs.