The Role of the Custodian

The role of the self-directed IRA custodian may be passive, but they do play an important role behind the scenes in making sure your investment decisions are followed through properly, and all reporting requirements are met.

The main responsibilities of a self-directed IRA custodian include:

  • Holding SDIRA account funds in a trust or custody.
  • Executing transactions based on direction from the client. 
  • Rolling over funds from one retirement plan to another (direct rollover).
  • Ensuring regulatory compliance, such as ensuring clients don’t exceed their annual contribution limits.
  • Filing Form 5498 and 1099-R with the IRS. 

Some self-directed IRA custodians like Horizon Trust may provide educational information to help you make more informed decisions. However, a custodian can only act on your behalf and within the confines of the law. Therefore, they are not responsible for investment performance inside of an account.

How Does a Custodian Differ from a Depository?

Much like depositories, custodians are tasked with handling clients' funds. However, custodians are heavily involved in account administration, whereas depositories are not.

Another key difference in the world of retirement planning is that depositories typically only offer limited investment options to stocks and bonds. Thanks to the structure and limited liability of custodians, they can handle and transact a wider array of assets under your direction, giving you more freedom and flexibility. [Learn more: Custodian vs. Depository]

What to Look for in a Self-Directed IRA Custodian?

It’s pretty clear that finding the right self-directed IRA custodian is important to the financial success of your retirement plan. Therefore, we’ve prepared a few questions to ask your next self-directed IRA custodian before hiring one.

Size & Experience
  • How much money do they handle under custody?
  • How long does it take them to execute transactions on your behalf?
  • How many clients have they worked with in the past?
  • Do they have any case studies?
  • What makes them different from other custodians?
Customer Satisfaction
  • Are customer reviews positive?
  • Do they have any testimonials?
  • How well do you perceive customer service?
  • Do they offer online account management services?
Asset Knowledge
  • What assets do they specialize in?
  • Are they knowledgeable in specialized assets, such as promissory notes?
  • Do they have account setup fees?
  • Do they charge hidden fees for transactions?
Account Setup
  • How easy is it to set up an account?
  • Do they offer rollover services?
Checkbook Control
  • Do they specialize in checkbook control?
  • Is the process of opening an LLC easy?
Investment Help
  • What educational resources do they offer to assist investors?
  • Do they offer hands-on consulting to assist customers?

Common Custodial Fees

Another key area to research when contracting a custodian is their fee structure. Every custodian charges differently, and some will be more costly than others.

Some common fees to look out for include:

  • Account Setup Fees: Fees will vary, but some companies will charge upwards of $50-$200 to set up a self-directed IRA.
  • Transaction Fees: Many custodians charge a fee for every trade or transaction you make that could be as little as $5-$20 per transaction.
  • Rollover Fees: While rollovers come with zero tax consequences, some custodians do charge a small fee for executing rollovers or transfers.
  • Annual Fees: Many companies charge a yearly account maintenance fee. However, unlike other custodians, Horizon Trust only charges a single annual fee that helps simplify account management.

Hidden Fees to Be Aware Of

In addition to most common account management fees, some custodians can nickel and dime you through several hidden fees, including:

  • Wire Fees
  • Research Fees
  • Cashier’s Check Fees
  • Corrected Tax Form Fees
  • Medallion Stamp Fees
  • Notary Fees
  • Recurring Bill Pay
  • Conversion Fees
  • Check Fees
  • Paper Handling Fees
  • Distribution Fees
  • Matured Note Fees

Bypassing Your Custodian with Checkbook Control

Does the idea of waiting on a custodian to execute transactions not work with your investment strategy? Thankfully, self-directed IRAs with established LLCs can bypass their custodians through a little thing called “checkbook control.”

Checkbook control allows you to cut checks directly from your IRA as long as you establish an LLC. Look for a self-directed IRA custodian who offers or specializes in checkbook control services. While certain promoters exist, it’s often easier to partner with a custodian who has experience establishing IRA LLCs.

Finding a Self-Directed IRA Custodian You Trust

A self-directed IRA custodian may be a passive entity, but they provide invaluable services that go beyond basic account management. While many custodians are motivated by money, Horizon Trust believes in empowering investors through the power of self-directed IRAs.

Whether it’s giving customers exclusive access to our proprietary Investment Corner, monthly webinars, free ebooks, or our continuous educational materials, we strive to deliver actionable knowledge to investors that makes them money. 

Together, we can harness the power of self-directed IRAs to build generational wealth and gain financial freedom using real assets that actually hold their value. 

If you’re interested in hiring Horizon Trust to manage your self-directed IRA, contact one of our concierge members to schedule an appointment over the phone. We believe in offering hands-on service to make you feel as comfortable and confident as possible with your investment decisions. 

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Self-Directed IRA FAQs

Anyone is eligible to open a self-directed IRA who has an existing retirement plan or money saved aside to contribute. Some custodians may require a minimum balance to fund an account in custody. Otherwise, you will need to be aware of Roth income limits. Currently, for 2024, Roth income limits are capped at a MAGI of $240,000 for married couples and $161,000 for singles.

Account holders are responsible for little-to-no paperwork during tax season. Your custodian will handle most tax forms, including Form 5498 and 1099-R, during tax season, though you may be required to calculate the FMV of your account if you own assets that are not easily quantifiable and require third-party help. Learn how to Calculate the Fair Market Value of Your SDIRA.

No, you cannot invest in a business where you personally own 50% or more of the total shares.

Unfortunately, you cannot take loans from an SDIRA like you can a 401(k).

A 15% tax on the total value of your asset that violates the prohibited transaction will be placed on your account for the first year and this will graduate to a 100% tax if not rectified accordingly. Disqualified persons will pay the same tax that violates this penalty.

You can purchase foreign assets with an SDIRA, though this requires additional tax work and legal complications. Consult with a tax professional and lawyer before completing such a transaction.

Traditional SDIRAs will pay a tax on all withdrawals above the age of 59½ based on the tax bracket they are in. All withdrawals from a Roth IRA are not taxed if taken after the age of 59½.

Your custodian will provide all of the key documents required to execute SDIRA investments. Horizon Trust has a list of all forms required to manage and transact an SDIRA.