How Do I Choose a Self-Directed IRA Custodian?

The Importance of Evaluating Your SDIRA Administrator

What is a Self-Directed IRA Custodian?

The Internal Revenue Code (IRC) Section 408 details that all IRAs must be held by a custodian, such as a bank, authorized trust company, or any other entity approved by the IRS to act as an IRA custodian. A Self-Directed IRA custodian is responsible for the following:
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Holding the account’s investments in custody
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Making transactions based on the direction of the IRA account holder
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Complying with all IRS reporting requirements regarding the IRA, which includes filing IRS Forms 5498 and 1099-R
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Maintaining the tax-advantaged status of the IRA

A Brief History of Self-Directed IRA Custodians

Most banks and financial institutions that offer IRAs limit account holder’s investment options to stocks, bonds, and mutual funds. However, as a result of the 2008 financial crisis many investors quickly became aware that alternative assets are the key to a diversified portfolio and can provide a hedge against the stock market. Therefore, to facilitate investing in alternative assets such as real estate, private equity, startups, promissory notes, and more, specialized Self-Directed IRA custodians, like Madison Trust, were established.

Self-Directed IRA Custodians at a Glance

An IRA must be held by a custodian, such as a bank, authorized trust company, or another entity approved by the IRS to act as an IRA custodian.
Opposed to most brokerages, Self-Directed IRA custodians allow you to invest in alternative assets like real estate, precious metals, and more.
To choose the best Self-Directed IRA custodian consider researching their client reviews, security measures, and fees, among other factors.
Madison Trust offers a flat-fee schedule, unmatched client support, secure investing, and a streamlined investment process.

How To Choose The Best Self-Directed IRA Custodian

Now that you know the answer to "who is the custodian of a Self-Directed IRA," you need to decide which one is right for you. Here are some features to look for when deciding what Self-Directed IRA custodian is best for you.
Client Service Model and Reviews

There’s nothing more telling about a company’s commitment to amazing customer service than client reviews. Custodians should be as clear and transparent as possible with all matters involving your retirement funds. When you call Madison Trust you will be serviced by a knowledgeable, friendly representative. Our clients are our primary focus and we are committed to excellence.
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This is evident through our A+ rating on the Better Business Bureau and the highest rating in the industry across all online rating platforms (such as Google, Yelp, Shopper Approved, etc.). We take our role in securing our client’s financial future seriously and strive to provide the easiest and most productive experience every time you contact us.
Excellent Security

When deciding on a custodian to hold your IRA, it is best to ensure that there are systems and controls in place to protect your personal and financial information. At Madison Trust, we take your security seriously. Your personal information is never sold to a third party. The employees who have access to this information are limited to those who need it to perform a specific job (for example, billing). Your sensitive information is protected online through encryption technology.
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We also train our employees to be vigilant when handling personal information and to be on the lookout for any potentially fraudulent or suspicious activity. When you call Madison Trust, before we provide any account-specific information, we have a system in place to ensure we are speaking to the proper party. For more information, please visit our privacy policy.
Low Fees

Every custodian has a unique fee schedule and the only way to find out the fees for each is to make individual queries. Madison Trust employs an inexpensive, flat-rate fee schedule that never surprises you with unexpected or hidden fees.
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Madison Trust’s fees remain the same no matter how much money accumulates in your account. You will never be charged more for being successful. For more information, visit our fee schedule.
Access to Alternative Assets

When choosing an IRA custodian, be sure to understand which type of assets you are looking to invest in. Are you looking to go the more traditional route and invest in stocks, bonds, and mutual funds? Or, are you looking to diversify your portfolio even further by investing in alternative assets such as real estate, private equity, promissory notes, or more?
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When you create a Self-Directed IRA at Madison Trust you have the power to invest in almost any alternative asset. Our team understands a wide array of asset classes and is here to answer all of your questions.
Ease of Account Set Up and Investing Process

It's considered best practice to start investing in your retirement as early as possible. Once your Madison Trust account is set up and funded, you can start investing immediately.
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In addition, some custodians strictly hold custody of your Self-Directed IRA investments and do not offer any other services (such as the creation of an LLC). Madison Trust works closely with our sister company, Broad Financial, to provide the entity creation, support, and custody of your Self-Directed IRA together for a streamlined experience.
Size and Industry Expertise

The size of a custodian’s business tells you about their experience and expertise. If a company has limited assets under custody, it may have fewer capabilities. Madison Trust has $4 billion+ in assets under custody, 20,000+ clients, and 2,000+ positive reviews, displaying our knowledge to accommodate all different types of assets.
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Our team has CISP-trained Specialists, which is the highest training an IRA Specialist can receive, making us well-versed in the IRS rules and regulations for holding alternative assets in an IRA. We provide coverage of our IRA accounts and a dedicated support team for the entire U.S.

You Have Questions? We Have Answers!

We’re here to assist you at any point of the process, from setting up your Self-Directed IRA all the way to placing your investment. Start the conversation today.
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What are the Different Types of Self-Directed IRA Custodians?

The best choice for a Self-Directed IRA custodian will also depend on what kind of assets an investor would like to purchase. Custodians differ greatly in the functionality they offer, and the right functionality is key for specific investments.

Here are some of the different services that Self-Directed IRA custodians offer their account holders.

Full-Service Custodian

What It Is: This is the classic setup for a Self-Directed IRA custodian. The custodian acts as the middle-man for every transaction and executes on demand. Does the account holder want to buy a property? They ask the custodian to facilitate the purchase. Does the account holder want to pay a bill? They ask the custodian to write a check. Basically, for anything that needs to be done, the custodian is asked to do it.

Pros: This kind of Self-Directed IRA custodian usually has the simplest and most economical setup. Also, there is a lot of interaction between the custodian and the account holder, which gives the account holder ample opportunity to ask questions.

Cons: This kind of account can grow very expensive, as its basic fee structure will either be asset-based or transaction-based. Neither of these are flat fees, and they can really take a bite out of your nest egg. Additionally, relying on the Self-Directed IRA custodian for time-sensitive transactions can be extremely frustrating. Paperwork and delays are standard for most companies, but in the investment realm, the consequences can be substantial.

This Account Is Best For: Investors who are considering low-transaction assets. If you are interested in the kind of investment that is not transaction-heavy, a full-service Self-Directed IRA custodian can be ideal. The setup is cheap, as you won't be managing the asset, and you can get started quickly. Just make sure to choose a custodian that doesn't charge asset-based fees based on the account’s value.

Checkbook Control Custodian

What It Is: Some Self-Directed IRA custodians offer account holders the option of checkbook control. This means that the account holder's IRA is attached to another financial vehicle (like a trust or an LLC), and that vehicle can open up a checking account. What this accomplishes is enabling the account holder to make transactions without going through the custodian. Any purchase or management activity can be accomplished directly by writing a check or sending a wire. In this case, the Self-Directed IRA LLC custodian would still be required to hold the IRA, but it wouldn't have to charge any additional fees.

Pros: The account holder can make as many transactions as they would like at no cost. Additionally, the transactions happen in real-time without any delay.

Cons: The setup fee for a Self-Directed IRA with checkbook control can be significantly higher than for a Self-Directed IRA. (This is due to the establishment of the LLC or trust.) That being said, the cost of setup is usually quickly offset by the savings in fees.

This Account Is Best For: Investors who are considering assets that require a lot of transactions. A common example would be a rental property that requires active management. No transaction or asset fees can help investors retain more of their savings. This kind of account is also good for investors whose investment model requires jumping on opportunities quickly.

The Power of Madison Trust

Incredible Client Support

Madison Trust was created with one goal: give retirement investors an amazing financial experience. The first step in that experience is unparalleled customer service. You’ll always be able to speak to a live and knowledgeable representative.
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Straightforward Fees

Madison’s Self-Directed IRA allows you to skip the asset-based fees and manage as you see fit. Amongst the lowest in the industry, our flat rates help ensure the profitability of your investments. Now you will never pay more for being successful.
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Madison Trust Specialists have completed rigorous CISP training and have a deep understanding of a variety of alternative asset classes. That means every answer you will get is financially informed, no matter what asset you choose to invest in.
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How Much Are Self-Directed IRA Custodian Fees? 

One of the first things account holders want to know when setting up their account is "how much are IRA custodial fees"? Unfortunately, there's no universal answer, as Self-Directed IRA custodian fees can vary a great deal. Each Self-Directed IRA custodian can use a unique fee schedule, and the only way to find out the fees for each is to research. Then, you can put together a Self-Directed IRA fee comparison to decide which one works best for you.

The costs you'll want to evaluate in a Self-Directed IRA fee comparison are:
Setup: A one-time fee to cover the initial setup
Transaction: A series of fees that are applied for every requested transaction (i.e., purchasing an asset)
Asset-based: A fee charged annually or quarterly to maintain the IRA
Annual Maintenance: A fee charged annually or quarterly to maintain the IRA
Asset Markup: A fee charged by the Self-Directed IRA custodian when pricing a specific asset
Please see Madison Trust’s fee schedule for more information regarding our fees

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What Kind of Self-Directed IRA Custodian is Best for Real Estate?

Choosing the right Self-Directed IRA real estate custodian depends on the nature of the real estate investment. We can break down real estate investments into two major categories for the purpose of choosing a Self-Directed Real Estate IRA custodian. The first is a real estate investment that is hands-off. This is where the investor contributes funds but a third party handles the management and business side of the investment. Examples of these include private REITs (real estate investment trusts) and private placements. Since involvement in these kinds of investments does not require any kind of transactions from the account holder, the classic Self-Directed custodian is the best fit. The account holder will be responsible for an inexpensive setup fee, light administrative fees, and the custodian's annual account fee. Due to the nature of the investment, though, they will be able to avoid expensive transaction fees.

The second category of real estate investment involves active management. This can include rehabs, fix-and-flips, and rental units. For these kinds of investments, a Self-Directed IRA custodian with checkbook control is a better fit. The reason for this is that these kinds of real estate assets require numerous transactions. Every contractor payment, deposited check, and maintenance action counts as another transaction. With a classic Self-Directed IRA custodian, the fees to handle these transactions can quickly become overwhelming. However, a Self-Directed IRA custodian that offers checkbook control does not charge any transaction fees. The setup may be a little bit more expensive, but it will quickly pay for itself.

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Ready to find out more? Contact an IRA Specialist at Madison Trust today. 

Our Story

Madison Trust is an industry-leading Self-Directed IRA custodian with a passion for empowering individuals to gain control of their retirement investing. Learn more about our story from our President & CEO, Daniel Gleich.

Ready to Get Started? We're Here for You! 

Madison Trust offers Self-Directed IRA services that are easy to get started with! Thanks to our dedicated Self-Directed IRA Specialists, you will be provided with step-by-step guidance from account setup all the way to placing your investment. 

It's time to start investing in what you know and believe in with a Madison Trust Self-Directed IRA!
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Self-Directed IRA Custodian – FAQs

How do I get started and open a Self-Directed IRA?

Self-Directed IRAs have always been possible, they’re just not well known. The reason is because most big brokerages deal exclusively with stock market products. By opening an account with a specialized self-directed custodian, you get the freedom to invest in what makes sense to you.

It is a simple 3 step process to open a Self Directed IRA at Madison Trust. 

(1) Create an account by completing an online application 
(2) Fund your account 
(3) Instruct Madison Trust to invest in the asset of your choice by filling out an Investment Authorization Form.

Visit How To Set Up a Self Directed-IRA for more information.

Why haven’t I heard of a Self-Directed IRA custodian?

Self-Directed IRAs have always been possible, they’re just not well known. The reason is because most big brokerages deal exclusively with stock market products. By opening an account with a specialized self-directed custodian, you get the freedom to invest in what makes sense to you.

Do I Need a Self-Directed IRA Custodian for my Self-Directed IRA?

The Internal Revenue Code (IRC) Section 408 details that all IRAs must be held by a custodian, such as a bank or trust company. Therefore, without a custodian, the initial creation of a SDIRA is not possible.

What Exactly Does a Self-Directed IRA Custodian Do?

A Self-Directed IRA custodian is responsible for administering the account and holding custody of the IRA’s assets. In this arrangement, your custodian will only perform transactions per instruction of the SDIRA owner. You, as the account holder, behave as the manager and make all your investment decisions. Though an SDIRA custodian can provide educational information, such as blog articles and webinars, they cannot give any financial advice. Consider speaking with a financial advisor if you’d like guidance on any of your investment ideas.

What Are My Responsibilities as a Self-Directed IRA Account Holder?

As the owner, you possess the sole responsibility of performing due diligence and evaluating prospective opportunities before directing your SDIRA custodian. We strongly encourage our clients to learn more about industry rules such as prohibited transactions, UBIT, and UDFI.

Are There Different Types of Custodians?

Brokerage Custodians (Brokerage Houses) – These brokerage-based custodians primarily work with Wall Street products such as stocks, ETFs, and mutual funds. They typically do not offer alternative investments. If you do not plan on diversifying your retirement portfolio outside of the stock market, this could be a good fit.

Alternative Self-Directed IRA Custodians – A wide range of assets are available and permitted in this account via the IRS. Alternative investing offers low-transaction assets such as private placements, loans, and startup investments. This signals that you may accrue a significantly lower transaction fee total than standard investments. If you’re considering diversifying your retirement portfolio beyond Wall Street products, this may be the ideal account type.

For those interested in alternative assets that require a substantial amount of transactions, some SDIRA custodians offer a SDIRA with checkbook control. Checkbook Control supercharges your account, giving it the title of an IRA LLC or IRA Trust. This is ideal for investors who want to perform everyday transactions without the involvement of their custodian. Moreover, you have the freedom to invest in real time, letting you seize any sudden opportunity. In conjunction, you will evade transaction fees.

Who Regulates Self-Directed IRA Custodians?

Self-Directed IRA custodians must be regulated by state and federal law. They are required to comply with IRS regulations and are overseen and regularly audited by their regulating state. As Madison Trust is a South Dakota chartered Trust Company, they are regulated by the Division of Banking of South Dakota.

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Corporate Headquarters:
Madison Trust Company
401 East 8th Street • Suite 200
Sioux Falls, SD 57103
Mailing Address:
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