Do Self Directed IRAs Need a Custodian?
Self directed IRAs offer you the freedom of investing your retirement savings on your own, but be wary that alternative assets carry risks that must be monitored carefully before investing. Furthermore, check all information provided in account statements regarding prices and asset values provided within an IRA account statement before proceeding with investment decisions.
Custodians and administrators may impose one-time transaction fees, annual account fees and LLC setup costs as fees for holding assets in trust. These charges may be substantial.
Self-directed IRAs may provide more investment options and flexibility, but they also incur higher fees than traditional investments and could potentially violate IRS prohibited transactions that could negate any tax benefits that you might otherwise enjoy.
If you’re considering opening a self-directed IRA, be sure to seek advice from an investment professional and/or securities attorney before making your decisions. Be wary of firms offering guaranteed returns or promising no risks; such practices could indicate investment fraud.
Start by reviewing the IRS list of nonbank custodians. There are over 50 firms listed, so be sure to do your research before selecting one. Check each firm’s licensing and registration through SEC and Financial Industry Regulatory Authority resources before checking with Better Business Bureau and state regulators. Also inquire as to pricing arrangements: some offer tiered fees depending on what types of investments they hold while others charge an annual flat fee.
Self-directed IRAs allow you to invest in alternative investments like real estate and private placement securities that may be more complex than stocks, bonds, and mutual funds. Therefore, it’s crucial that your custodian supports such types of investments as well as providing accurate information regarding them – some custodians have been accused of failing to fully vet prices and returns reported by investment promoters.
Alternative assets may also have limited liquidity or be difficult to value, making it challenging for you to sell them if necessary or when taking out required minimum distributions (RMDs). It is also essential that any custodian you select understand the tax implications of these less common assets – for instance identifying any prohibited transactions – for best results.
If you want to convert a traditional IRA into a self-directed IRA, your custodian will send the necessary forms for completion. Once these have been submitted and submitted successfully, your new custodian will send a check directly into your old account; after which, you have up to 60 days in which to transfer funds over.
Make sure your custodian is open about their fees. Many IRA custodians charge administrative and transaction fees on any investment purchases or sales.
Some custodians are better at handling alternative assets than others; if you want to invest in something exotic like private placement securities or tax liens, work with a specialized firm instead of going with a general-purpose custodian; you will pay more but will receive better service and have reduced risk. Be sure to ask about security measures they have put in place for customer data protection – data breaches have unfortunately become all too frequent over time.
Custodians charge fees not only for account maintenance, but may also have one-time setup and transfer fees as well. Before opening an SDIRA, it’s wise to carefully vet and consider all associated costs before making a commitment.
As well as thoroughly investigating your custodian, it’s also essential that you conduct due diligence on investment opportunities for your self-directed IRA. Any promises of guaranteed returns should be taken with suspicion as all investments contain risk; fraudsters could make false promises to entice investors into high-risk investments.
To reduce fraud, make sure that any custodian chosen meets IRS requirements and maintains an approved list. State regulators can also be helpful when verifying legitimacy; and it would be advisable to seek professional advice prior to making decisions on investments or custodial accounts.