The IRS requires SDIRAs to have a certified IRA custodian. It’s important that you understand the fees and costs associated with working with an IRA custodian. 

Self-directed investing is a great way to take charge of your own retirement and gain the flexibility you need to grow your portfolio. 

If you have the patience and the due diligence required, you can take the middleman out of investing and build your own retirement portfolio with a self-directed IRA.

Unfortunately, while a self-directed IRA provides nearly unlimited investment freedom, there is one caveat: you need to hire a custodian to manage your account. 

Custodians act similarly to depositories and still provide you with the freedom you need to invest. However, they may come with their own set of fees and added costs. 

For this reason, it’s important to find a self-directed IRA custodian you can trust and that will offer you the best rates. Here is a breakdown of common custodial fees and what to watch out for. 

What is an SDIRA Custodian?

Custodians are certified institutions charged with safekeeping your investments and complying with all tax laws. 

Unlike money managers or accountants, custodians are primarily tasked with reporting your investments to the IRS and holding your account’s money. 

Be aware of IRA administrators acting as custodians. Only a certified custodian is qualified to handle your account.

Since custodians are mostly hands-off, the fees for hiring a custodian are relatively small. Nevertheless, it’s important to understand what fees are being charged and why so you can pick the best custodian for your account. 

What are SDIRA Custodian Fees? 

Different SDIRA custodians charge in different ways. While every custodian charges a sign-up fee, there are other ways that custodians can charge fees that you should be aware of. 

  • Total Asset Value: When custodians charge their fees based on total asset value, they charge you a percentage of your SDIRA’s total worth. Custodians who charge this fee typically place assets into categories based on their value and charge a fee per group. Depending on the size and number of your investments, the average number of category groups is usually 4-5.
  • Per Asset Basis: Under this agreement, the custodian will charge a certain amount (either a percentage or a flat fee) associated with each asset. The price range may change based on the custodian, so be aware that this number could fluctuate depending on whom you choose.
  • Flat Fee: Some custodians choose to charge clients a flat fee that does not change based on assets or their value. This fee may be preferable in some situations, especially if you own many assets or a large portfolio. 

Consult with Horizon Trust

Additional Fees to Keep an Eye On

In addition to the standard IRA custodial fees, there are other fees that you should keep an eye on. While these fees may be unavoidable, you should still be aware of how much money you’re spending on your account. 

  • IRA Transaction Fees: Fees are charged by the custodian and the bank each time a transaction is completed.
  • IRA Service Fee: Fees charged periodically for managing the account.
  • Account Research Fee: Fees charged for researching information for your account. In many cases, you can do this research yourself. 
  • Account Closure Fees: Fees charged for closing or transferring the account.

Real Estate IRA Investment Fees

If you invest in real estate through your IRA, you will likely be charged additional fees. These fees cover the cost of processing your earnest money deposit and additional loan fees. 

For example, you may pay a fee for the cost of purchasing real estate with your SDIRA or take a non-recourse loan with your IRA to purchase real estate. 

Other Alternative Asset Fees

Other investments like crypto, precious metals, and promissory notes may come with their own set of fees, depending on your custodian. 

Are Self-Directed IRA Custodial Fees Tax Deductible? 

SDIRA custodial fees may be tax deductible if you file itemized deductions on your annual tax return. This is a great way to offset the cost of your transactions by lowering your tax burden; just another reason to switch to an SDIRA. 

Bypassing Fees with an LLC

If you’re looking for another way to circumvent your custodial fees, then it might pay to open up an SDIRA LLC. 

While this option does require you to take more responsibility for your account, you will only be responsible for reporting your transactions to your chosen custodian. And you will reduce the number of fees charged by your custodian significantly. 

Tips for Selecting the Right Custodian

Since you’re saving for your future, you need to be sure that you’re working with the right custodian. After all, your custodian will have a great deal of influence on your account and the fees you pay. 

When looking for a custodian, consider the following:

  • Fees: How much will your custodian’s fees affect your bottom line?
  • Experience: How much experience does the custodian have with IRAs and the investments you want to target?
  • Reputation: What type of reputation does the custodian have among investors? Can you trust them?
  • Certifications: Is your custodian certified to engage in the transactions I want to perform? 
  • Familiarity: Is the custodian familiar with alternative asset classes?

Fortunately, Horizon Trust is one of the top-rated self-directed IRA custodians on the market and charges industry-low fees to its clients. 

To learn more about Horizon Trust’s fees and how we can help you diversify your portfolio with an SDIRA, contact us to schedule an appointment

Self-Directed IRA Custodial Fees: FAQs

How Are Custodial Fees Factored into IRA Contribution Limits? 

They aren’t. Custodial fees are not considered part of your annual contribution.

How Are IRA Custodial Fees Calculated? 

Custodial fees are calculated differently by different custodians. Some may charge a percentage of each asset’s value, or the total value of your account. Others opt for a flat fee.