How to Choose a Self-Directed IRA Custodian
Alternative Investments in IRAs
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Several types of companies provide services for Self-Directed IRAs that hold alternative assets. Not all of these companies are qualified custodians, and their responsibilities and regulatory oversight can differ.
Keep the following points in mind when comparing providers:
Self-directed IRA administrators do not meet the IRS requirements to be a custodian or trust. As such, they cannot hold title to assets. Usually, their role involves marketing and selling, data entry, producing statements, and basic reporting. However, they can serve as a link to a reputable IRA custodian.
Alternatively, a lack of oversight means passing funds through an administrator to a self-directed IRA custodian can create more risk for investors.
Essentially, self-directed IRA promoters generate buy-in from investors to fund alternative assets by establishing a self-directed IRA. Investors should take caution and do their due diligence when working with a promoter as not all of them are regulated professionals.
This means they may not be subjected to the same regulatory oversight and investor protection rules that govern the securities industry. Besides fraud, this could also make your retirement account more vulnerable to prohibited transactions, resulting in penalties for your self-directed IRA or it could even lose its tax-advantaged status.
Keep in mind that a custodian is not a financial advisor. Your self-directed IRA custodian doesn’t conduct or research assets on your behalf, nor do they recommend investments to clients. Their role is to serve as a passive intermediary between the investor and the issuer of an investment. Their only role is to hold and administer the assets in a self-directed IRA. In general, your custodian is not liable to evaluate the quality or legitimacy of investments held in the self-directed IRA or its promoters.
Even though a self-directed IRA custodian acts as a middleman, you are still required to have one to operate your retirement account. IRS regulations state that all IRAs must be kept in the custody of a business that has been registered and controlled by the IRS as a "non-bank custodian," such as a bank, credit union, trust company, or similar organization.
A Self-Directed IRA custodian is a financial institution responsible for holding IRA assets, maintaining account records, processing transactions, and completing required tax reporting. Depending on its charter, the custodian may be regulated and examined by state or federal authorities.
To serve as an IRA custodian, an institution must have the appropriate authority under federal or state law. Banks and trust companies receive this authority through their charters, while qualifying nonbank entities must receive IRS approval.
Requirements vary by charter and regulator but may include minimum capital, insurance, bonding, internal controls, recordkeeping standards, and reviews of the institution’s leadership and operations. This oversight applies to the custodian as an institution. It does not mean the custodian has evaluated or approved the quality, legitimacy, or potential performance of an investment.
Trust companies are subject to examinations based on the requirements of their charter and regulating authority. These reviews may cover the company’s financial condition, internal controls, policies, records, client funds, and compliance procedures.
A Self-Directed IRA custodian generally performs administrative and custodial duties rather than selecting or recommending investments. The account owner is responsible for choosing each investment, evaluating its risks, conducting due diligence, and avoiding transactions involving disqualified persons.
Self-Directed IRA custodians differ in the assets they support, the services they provide, their fee structures, and the regulations that apply to them. Choose a custodian based on your intended investments, account type, and service needs.
A larger trust company may support several account types and asset classes, while a specialized custodian may focus on a narrower range of alternative investments. Confirm that the custodian has experience processing the types of transactions you expect to complete.
Custodial fees can reduce your account’s returns over time, so review the complete fee structure before opening an account. Providers may charge flat fees, asset-based fees, or a combination of both.
Compare account establishment fees, annual or quarterly maintenance fees, asset fees, transaction charges, wire fees, check fees, and termination fees. Consider how each fee structure would apply to the number, type, and value of the assets you expect to hold.
Look for a custodian with experience supporting your intended asset class. For example, a real estate investor should consider whether the custodian regularly processes property purchases, expenses, income, valuations, and sales within an IRA.
A custodian can explain its procedures and account requirements but generally does not provide investment, tax, or legal advice. Clear communication remains important, particularly when a transaction has deadlines or requires several documents. Before choosing a provider, contact its service team to see how quickly and clearly it responds.
Ask about standard processing times for purchases, bill payments, wires, document reviews, and other common requests. You should also review customer service hours, available communication methods, cutoff times, and procedures for urgent transactions. Understanding these details in advance can help you plan transactions and avoid preventable delays.
IRAR Trust Company is a South Dakota-chartered trust company regulated by the South Dakota Division of Banking. We specialize in administering Self-Directed IRAs that hold alternative assets, including real estate and private placements.
As a regulated trust company, IRAR is subject to regulatory oversight and examination. Reviews may cover financial condition, recordkeeping, asset custody, internal controls, trust accounting, regulatory reporting, client communications, and account statements.
IRAR uses a per-asset annual fee structure rather than basing its fees on the value of an account. Review our complete fee schedule and compare it with other custodians based on the assets and transactions you expect to have.
IRAR Trust Company has supported Self-Directed IRA investors since 1996. Our team has experience processing real estate and private equity transactions and includes professionals who hold the Certified IRA Services Professional (CISP) designation.
We explain account procedures and the rules that apply to Self-Directed IRAs, but we do not recommend, endorse, or promote investments. We also do not provide investment, tax, legal, or financial advice. You remain responsible for selecting investments, conducting due diligence, and making each investment decision.
Alternative asset transactions can involve deadlines, documents, and several parties. Our team is available to answer questions about IRAR’s processes and help you understand what is required to complete your request. Call us at 888-322-6534.
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