Self-Directed IRA fees come in a variety of forms and can be difficult to understand. Not only are there different kinds of Self-Directed IRA platforms (each with its 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.
Yes: There is no such thing as a fee-free Self-Directed IRA. However, the way the fees are structured can change depending on the type of Self-Directed IRA. For some companies, this means charging a heftier setup fee, while for others, it can mean charging a percentage of asset value. In order to better understand Self-Directed IRA fees, you should first learn about the types of accounts.
- Self-Directed IRA: This is a custodian-centric account for which all transactions are executed by the custodian.
- Self-Directed IRA LLC: This is a retirement account that allows investors to perform transactions without going through a custodian.
Some of the common Self-Directed IRA fees you'll encounter include:
- Setup Fee: A one-time fee that covers the establishment of the Self-Directed IRA by the custodian
- Transaction Fees: Fees the custodian charges for performing transactions on behalf of the account holder
- Asset-Based Fee: A quarterly or annual fee that is charged based on the total value of assets that are being held by the Self-Directed IRA
- LLC State Fee: If you’re investing with a Self-Directed IRA LLC, depending on the state, you may be charged an annual LLC State Fee
- Annual Account Fee: Fee charged by the custodian for maintaining 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
Now that we know the basic kinds of Self-Directed IRA accounts and the standard fees, let's find out what fees you may be charged based on your account type.
- A Self-Directed IRA will typically charge a low setup fee, transaction fees, and then either a flat quarterly fee or an asset-based fee.
- A Self-Directed IRA LLC will charge a more substantial setup fee, a variable LLC State Fee, but no transaction or asset-based fees.
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.
- 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 payment of IRA custodian fees is tax-deductible if you deduct certain expenses under "miscellaneous itemized deductions." However, this only counts if the Self-Directed IRA fees were paid through your personal funds and didn't come out of your IRA account.
At Madison Trust, we take pride in our transparent, sensible fee schedule. The cost to set up a Self-Directed IRA is $50, and it's $100 per quarter to maintain. Our general pricing model includes a low setup fee, a low, flat quarterly fee, and low transaction fees. That means you will never see the large asset-based charges that are often associated with Self-Directed IRA platforms. Use our comparison calculator to see how our fee schedule compares to the competition.
Interested in learning more? Reach out to us today and let one of our IRA specialists answer all of your questions.