If you are looking to to invest in alternate assets, such as real estate, with your Individual Retirement Account (IRA), you will need to find the proper custodian. A Self Directed IRA custodian is one that will safe-keep your IRA investments. Most, but not all, Self Directed IRA custodians will allow for alternate investments. If you have a traditional IRA already through a bank, trust company or credit union, you know what a custodian is. They hold the assets in your IRA account. However, most traditional financial institutions do not allow for alternate investments. This is why you will need a special custodian to do so.
The Difference Between a Custodian and an Administrator
In order to invest with any kind of IRA, your account must be opened at a “qualified custodian” who will oversee the account. They must follow strict banking regulations set forth by the government. These rules are there to protect both you and your funds held at the custodian. Failure to have a qualified custodian may lead to serious tax consequences or the disqualification of your IRA.
A Custodian should not be confused with an Administrator. An IRA administrator is there to take of all the ins and outs of the account. These services can include tax reporting, quarterly statements, document processing and IRS compliance services. You must have some type of administrator for your Self Directed IRA since you are not legally allowed to perform these duties yourself. Oftentimes, administrators are not bound by banking laws. You will usually sign some type of contract with them, which you are then bound by.
Lastly, a qualified custodian may also offer administration services. IRA Financial Group (IRAFG) acts as a facilitator of Self Directed IRAs (and also an administrator). Our sister company, IRA Financial Trust (IRAFT), is both a qualified custodian and an administrator.
The Ten Most Important Questions to Ask an IRA Custodian
1. Are you a custodian or an administrator? As we just touched upon, there’s a difference between a Self Directed IRA custodian and administrator. Your IRA must be held with a custodian. However, an IRA administrator will work with a custodian as well. For example, before IRA Financial partner Adam Bergman started the IRA Financial Trust Company, IRA Financial Group acted as an administrator with ties to several custodian options for clients to choose from. So long as you have a good administrator, you should be well covered.
2. What types of investments can I make? If you are looking into opening a Self Directed IRA, you probably want to invest in alternative assets, such as real estate, tax liens and precious metals. The IRS allows for alternate investments, however, not all IRA custodians do. With IRAFT, you are not limited in what you are allowed to invest in.
3. What fees do you charge for your services and how are they charged? Different companies offer different fee schedules. Fees can vary based on account value, the number of transactions and the specific services you need. For example, IRA Financial Trust charges one flat, annual fee, due at set-up and then billed quarterly each subsequent year. Checkout IRAFT’s fee schedule here.
4. Do I need permission to make an investment? Generally, there are two types of SDIRAs: Custodian Control and Checkbook Control. With a custodian controlled IRA, you need to get permission to make an investment. This takes time and may come with transaction fees. When you have “checkbook control” of your Self Directed IRA, you can make an investment without custodian consent. You simply write a check or wire funds directly from your SDIRA LLC account. There is no delay or transaction fees.
5. What types of accounts do you offer? Most IRA custodians and administrators offer traditional, as well as Roth IRA plans. However, you might be interested in another type of account. Self-Employed individuals might seek a Solo 401(k), small business owners may want a SEP or SIMPLE IRA. Other options include Health Savings Accounts, Coverdells and ESOPs. Make sure the custodian you are interested in offers the plan(s) you need.
6. Is my personal and financial information safe? In this day and age, it’s increasingly important to safeguard your personal information. Identity theft, hacking, data breaches and fraud are huge concerns when dealing with any type of institution that needs personal data. Therefore, you must know that your IRA custodian will keep your information safe and secure. Is your website secure? Is my information encrypted? Who has access to my info? – All important things to know before choosing a custodian.
7. Tell me about your company. I know this is not a direct question, but you should know as much as you can about your custodian. These are some questions you should ask the company before entrusting them with your money: How long have you been in business? How many clients do you have? How much are the assets in which you control worth? Are my assets insured? How many employees do you have (i.e. will my needs be met in a timely matter)? How is your customer service? Are you BBB accredited? Are you regulated (and by whom)? Any information you can garner about the custodian will help you make a more informed decision.
8. Do you provide educational materials? Self Directed IRA custodians do not offer financial advice. However, it’s important they do provide educational materials to help you better understand the product, the process and the rules. These may include an informative website (including a blog), podcasts and videos, an app or webinars. The more information you can garner, the more informed you will be about the entire process.
9. What is your coverage area? Since the start of the Internet, there’s no longer a need to do everything face-to-face. Nowadays, you don’t even need to be in the same state or country. However, certain IRA custodians might have a small geographical area that they cover. This may be an issue for you, particularly if you are a real estate investor. IRA Financial Group offers their services world-wide. You can invest right in town, or around the globe.
10. Do you have references or testimonials? Lastly, it’s of vital importance to know just how experienced your Self Directed IRA custodian is. How do current clients rate their experiences? Is customer service friendly and efficient? Do you have a referral program? Were there any complaints filed against the company or an employee? These are all important questions to consider when signing up for a long term financial commitment.
The Final Take
Control of your retirement funds is an important undertaking. It’s imperative that you find a trustworthy company to manage these funds. A Self Directed IRA custodian should be fair and honest and make sure your assets are kept safe and available when you need them. If you’re looking for an all-in-one custodian and administrator, you can’t beat IRA Financial Trust. They are experienced, affordable and offer you the freedom to invest in whatever you see fit. On the other hand, IRA Financial Group can facilitate your Self Directed IRA with different custodian if you so choose. Either way, you’re in good hands with the entire IRA Financial team.
To get in touch with IRA Financial Group, you can contact them at 800.472.0646. For IRA Financial Trust, call them at 800.472.1043. Thanks for reading!
Did You Know?
A Self-Directed IRA can be used to invest in all kinds of alternative assets as well as traditional ones. During COVID-19 and times of upheaval, diversifying your portfolio can help your retirement planning stay on track by limiting your exposure to certain losses. Contact us today to learn more.