How to Choose a Self-Directed IRA Custodian

Alternative Investments in IRAs

Compare Custodians Template

IRA Custodians, Administrators, and Promoters

To invest in alternative assets such as real estate or private equity with your retirement savings, you need a self-directed IRA. The IRS states that this must be through a passive 3rd party. Many investors choose an custodian for the added protections this oversight brings.

However, there are many companies out there that hold assets in an individual retirement account not all of which are IRA custodians. It's important to differentiate between these types of companies since they're not all regulated the same (if at all). Choose the right company- one that will help you meet your retirement goals.

Different Types of Companies

There are many self-directed IRA companies that hold alternative assets in individual retirement accounts, not all of which are custodians. It's important to differentiate between these types of companies, since they're not all regulated the same (if at all).

However, there are a few commonalities between companies investors should be aware of. Here’s a list of what to keep in mind regardless of the type of company you choose:

  • An IRA must be held by a custodian, which can be a bank, a licensed trust firm, or another organization allowed by the IRS to serve in a custodial capacity.
  • Unlike companies that offer brokerage accounts, through a self-Directed IRA custodian, investors can build their dream portfolio through alternative assets like real estate, precious metals, cryptocurrencies, and more.
  • When choosing the most knowledgeable self-directed IRA custodian, be sure to take a look at customer testimonials, security protocols, fees, and other variables that can affect the cost or performance of the retirement account.

Self-Directed IRA Providers & IRA Administrators

  • Usually not custodians. These companies rely on a custodian (a separate entity) to conduct business.
  • Not directly regulated by state and federal law, they act as a third-party administrator for your retirement account.
  • May be backed by an outside custodian who they operate under or have a contract with.

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. 

SDIRA Promoters

  • Usually offers a product such as a self-directed IRA LLC or checkbook IRA to hold your investment.
  • May or may not be custodians, but typically works with one.
  • Most act as a third-party investment provider, referring business to one or many custodians.

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.

SDIRA Custodians

  • Are regulated directly by state and federal law.
  • Hold the title of the assets and investments in your IRA directly.
  • Must comply with IRS requirements, and are directly overseen and regularly audited by the regulating state.
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.

What is a Self-Directed IRA Custodian?

It is a financial institution that holds your retirement account's alternative assets for safekeeping and IRS reporting. It is regulated, audited, and adheres to IRS rules and guidelines.

Added Protection and Oversight

To become a self-directed IRA custodian, a company must undergo a rigorous application process. This involves meeting specific legal and IRS regulations, along with demonstrating certain requirements. The process is complex and requires the company to meet strict standards. They must also provide a capital pledge, liability insurance, and a fidelity bond, among other qualifications. The company and its leaders must prove their ability to perform custodian duties as required by the law. Once approved, the company receives a Charter and Certificate of Authority from the state in which it applied, signifying their readiness to serve as a self-directed IRA custodian.

How Are Custodians  Regulated?

Trust companies undergo regular audits and are expected to adhere to strict guidelines outlined in their written policies and procedures. During these audits, auditors conduct a comprehensive review of the trust company's books, records, funds, and IRA investments to ensure that all operations are being carried out correctly. The auditors pay particular attention to any transactions that involve disqualified persons or asset types, as these are prohibited by IRS regulations. The goal of the audit is to ensure that the trust company is operating in compliance with all applicable laws and regulations. Our charter (and all self-directed IRA custodian charters) specifically forbids these types of investments. For example, a self-directed IRA custodian cannot legally offer one of their clients any investment advice or investment opportunities. The investment option is yours as is conducting due diligence on the asset.

Custodians Come In All Types And Sizes, But Choose Wisely

Not all custodians are the same or provide the same services, but they all are regulated similarly by federal and state law.

It is important to determine the type of company you want to work with, based on your investment choice and account type. Are you looking for a one-stop shop? If so, perhaps a large trust company with many types of services would be ideal. But beware, don't get stuck with a company that is a jack of all trades, master of none.

Best Fees

Fees that are often ignored by account holders and can significantly affect IRA accounts. Retirement plan fees are the primary cause of retirement fund depletion, hindering the growth of your hard-earned money. To comprehend fee structures, it is essential to understand how custodians charge and compare. As your investments increase, you should not be required to pay more.

When comparing a list of self-directed IRA custodians, be sure to cross-examine annual fees, setup fees, opening account fee, and transaction fees. Also make sure to check for either a flat quarterly fee or an asset-based fee. 

Customer Service & Industry  Knowledge

When choosing a self-directed IRA custodian, knowledge is just as important as IRS oversight. Look for a custodian with experience and expertise in your desired investment area. Their knowledge should extend beyond just the IRA rules but encompass the specific regulations surrounding your chosen asset class. For example, if you are investing in real estate, you should look for a real estate IRA custodian knowledgeable in real estate.

Clear communication is very important, especially when it comes to your retirement. If you have a time-sensitive question, you want to make sure you can get a hold of the staff— and when you do, they know what they're talking about.

Best Service Times

Timely responses are crucial. A good custodian can streamline the process,  ensuring bills are paid on time (avoiding fees) and transactions are completed efficiently. Look for signs of responsiveness: were your calls returned promptly? Did you feel like you were getting passed around?  When researching custodians, ask about customer service hours, communication style, and processing times for transactions. Avoiding these potential headaches upfront can save you time and frustration later.

Why Choose IRAR as Your Self-Directed IRA Custodian

IRAR Trust Company is a self-directed IRA custodian regulated directly by the South Dakota Division of Banking— the state with the most knowledge and experience in working with self-directed IRA custodians. Our low fee self-directed IRAs help you save over 50% compared to most self-directed IRA administrators and custodians.

A Regulated Financial Institution

Our annual account reviews include but are not limited to audits of recordkeeping, safekeeping of assets, compliance with federal and state laws, IRS reporting, trust accounting, account correspondence,  distributing account statements.

Seasoned and Best in Class— Makes IRAR The Best Self-Directed IRA Custodian

Lowered, competitive fees, unrivaled client support, secure investing, and a streamlined investment process— these are all of the qualifications to look for when choosing a self-directed IRA custodian like IRAR. 

If you are an investor looking for specialized services and personalized service, IRAR Trust Company is the ideal custodian. We specialize in real estate and private equity transactions in self-directed IRAs. We bring years of knowledge, experience, and hands-on assistance as needed. We do not offer, endorse, or promote products or investment options, nor do we provide investment advice. Your IRA, your choice. Our team holds the Certified IRA Services Professional (CISP) designation. Our average employee has 10 years of experience in self-directed IRAs, uncommon in our niche industry. We're a seasoned and dedicated group. We have a passion for education. No matter the question, you know you're getting up-to-date information every time you call.

When you self-direct your retirement funds you are in charge of every investment decision. This is why it's so important for any investor to choose a custodian that is responsive.

IRAR's committed to answering the phone because we know it's essential to have a team you can trust behind you.  Give us a call- you'll be glad you did. 888-322-6534.

Self-Directed IRA Custodian FAQs

What is a self-directed IRA Custodian? 

self-directed IRA custodian is a financial institution that holds your IRA's alternative investments for safekeeping. It is regulated, audited, and adheres to IRS rules and guidelines. 

Are all self-directed IRA companies the same? 

Not all self-directed IRA companies are the same. There are many companies that "hold" alternative investments in IRAs that are not regulated like custodians. It's important to know the difference between custodians, administrators, and promoters." 

How do I find the best self-directed IRA custodian? 

To find the best IRA custodian for your strategy, you must do a comparison in fees and services. Use this template to help you make an informed decision.