Self Directed IRA Fees
Self Directed IRA Fees come in a variety of forms and can be difficult to understand. Not only are there different kind of Self Directed IRA platforms (each with their own unique fees), but even when comparing identical platforms, the fee structures can be radically different. Let’s break down the possible fees in a Self Directed IRA and what you should look for when comparing plans.
To find out more about Madison’s fee structure, please click here. (scrolls to relevant paragraph)
An Introduction To Self Directed IRA Fees
There is no such thing as a fee-free Self Directed IRA. Revenue has to be provided for in some way in order to provide account holders with self-directed service. However, the way the fees are structured can change depending on the type of Self Directed IRA that is offering them. For some companies this means charging a heftier set-up fee, while for others it can mean charging a percentage of asset value. In order to better anticipate the Self Directed IRA Fees, let’s identify the most common Self Directed IRA accounts.
- Custodial Self Directed IRA – This is a Custodian-centric account where all transactions are executed by the Custodian.
- Self Directed Checkbook IRA – This is a retirement account that allows investors to make transactions without going through the Custodian.
- Asset Based IRA – This is an account which is driven by a specific asset. Common examples of asset based IRAs include the Gold IRA or Bitcoin IRA.
Common Self Directed IRA Fees
These are the types of fees that you’ll most commonly encounter when researching Self Directed IRA platforms.
- Setup Fee – A one-time fee that covers establishment of the Self Directed IRA account by the Custodian.
- Transaction Fees – A fee the Custodian charges for performing transactions on behalf of the account holder.
- Asset Based Fees – A quarterly or annual fee that is charged based on the total value of assets that are being held by the Self Directed IRA account.
- Administrative Fees – Charges for processing documentation or funds.
- LLC Fees – A fee charged by the state that the LLC is located in. (Not every state charges a LLC fee.)
- Annual Account Fee – Fee charged by the Custodian for holding the IRA.
- Asset Purchasing Fees – When a Self Directed IRA company also provides the asset being invested in, there will often be an increased markup on the purchase price.
- Asset Holding Fees – Assets like gold are charged a storage fee by the depository and that fee is usually passed along to the account holder.
Which Self Directed IRA Fees To Expect
Now that we know the basic kinds of Self Directed IRA accounts and the standard fees, let’s find out what an investor can expect.
- A Custodial Self Directed IRA will typically charge a low setup fee, administrative and transaction fees, and then either a flat quarterly fee or an asset based fee.
- An IRA LLC will charge a more substantial setup fee, a variable annual administrative fee, but no transaction or asset based fees.
- An asset specific Self Directed IRA can charge any combination of fees, in addition to the increased markup on the specific asset and storage fees. Within the asset based niche, companies will often compete with each other based on varying fee schedules.
Choosing The Right Self Directed IRA Fee Structure
Every investor would love to pay the most economical fees and get the best account functionality. However, due to the nature of Self Directed IRA investing, the choice of fee structure is not always an easy one. This is because the fees can vary not only by company but also according to two other factors:
- The type of asset that is chosen for investment
- The management structure of the chosen asset
With that in mind, let’s cover some of the more popular Self Directed IRA assets and determine the best kind of fee structure for each.
- Real estate in a private placement – A Custodial Self Directed IRA is usually the best choice as it has a low setup fee and you won’t be paying many transaction fees because the property is within a private placement. Just be careful to choose a Self Directed IRA Custodian that doesn’t charge asset based fees. Real estate values can be quite high and you don’t want to be stuck paying more because you’re successful.
- Real estate with direct management – If you choose to purchase a property and manage it independently, then an IRA LLC (or any other platform which offers checkbook control) would be the best fit. This is because real estate management is often transaction heavy and you want to choose a platform that doesn’t charge transaction fees. With an IRA LLC, the transactions occur within the dedicated checking account so there is naturally no Custodian executed transactions. Investors may pay more for the initial setup, but the savings in transaction and asset based fees will almost always come out to be substantial.
- Gold and precious metals – There is a lot of price variation in this area but chances are your research will show the economic advantage of a general Custodial Self Directed IRA. With a general account, you have the freedom to shop around and find the dealer and storage solution that fits your budget. If you choose instead to open a dedicated Gold IRA (as is heavily advertised) you could end up paying a lot more in fees. These would include markup on the gold itself, hefty storage fees, and other gold specific administrative fees.
- Startups or crowdfunded ventures – Here it depends on your involvement with the investment. Will you be investing in the style of a private placement, I.e. you write the check but a third-party company will handle all the management? Or is it a company that you perform managerial duties for and you will be funding it with your IRA? Most of these kinds of investments fall under the first category (private placement) and thus would be best served by a low priced Custodial Self Directed IRA.
The Madison Trust Fee Schedule
At Madison Trust, we take pride in our transparent, sensible fee schedule. The cost to set up a Self Directed IRA is $50 and $90 per quarter to maintain. Our general pricing model includes a low setup fee, a low flat quarterly fee, and transaction fees. That means you will never see the large asset based charges that are often associated with Self Directed IRA platforms. To see how the Madison fee schedule compares with other Self Directed IRA Custodians, please visit the Comparison Calculator.