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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.