Whether you are a seasoned veteran or have just joined the Self-Directed IRA team as an investor, you have heard or will hear terms related to the services that will be provided to you. Each of these services has its own degree of oversight, so it’s to your advantage as the owner of the IRA to know what each one means.
While each of the services is important, we will start with the one that is essential to get you started in the right direction—the administrator.
Administrators have the responsibility of opening and maintaining your account
The administrators manage all of the paperwork to open and maintain your Self-Directed IRA. They usually work together with the custodian (explained in detail below) who maintains custody of the assets in your account. The administrator is also charged with submitting reports to the IRS and executing the compliance duties for the IRA program.
Always choose an administrator who is experienced in handling Self-Directed IRAs. Experience typically translates into comprehensive knowledge, fast response times, and the ability to resolve issues quickly.
The most reliable administrators have been serving their clients for many years, and their teams are highly trained and knowledgeable on the latest Self-Directed IRA regulations.
Custodians maintain custody of the assets in your IRA
While the word “custody” is not always used to mean in the physical sense, a custodian will have possession of the deeds and paperwork related to the asset, as in the case of real estate. Every IRA will have a custodian since IRA holders are not allowed to have direct possession of an asset if it is to remain tax-deferred.
The IRS and state authorities regulate custodians. Custodians who specialize in Self-Directed IRAs will have extensive experience in alternative investments–real estate, tax liens, private companies and such–that self-directed investors will typically choose.
Some examples of custodians include:
- Brokerage houses
- Banks, including non-depository banks
- Credit unions
But be aware that not all of these firms are set up to handle your Self-Directed IRA. Banks, credit unions, and brokerage houses that act as custodians for conventional IRA investors are usually proficient in standard investments such as stocks, bonds, CDs, and money market accounts. They will likely not have the expertise or capabilities to handle transactions in alternative investments. So, before you move forward, make sure you are aligned with a custodian who can serve your self-directed needs.
One more consideration: Even when you find a self-directed custodian, it might be that this custodian has a specific area of expertise: private stock, for example. By choosing a custodian who specializes, you will be limiting your choices if you want to diversify into other assets like real estate or precious metals. Make sure your custodian allows you to have every opportunity permitted by the IRS as an alternative investment.
Facilitators provide advice and consulting
While they might also call themselves advisers or consultants, facilitators focus on educating Self-Directed IRA investors. They can assist in structuring the components of a single-member LLC to your retirement plan, which will give you checkbook control of your Self-Directed IRA.
Facilitators usually can assist in all areas of the self-directed process as long as they are legally able to do so. They should make it easier to understand your Self-Directed IRA, the investment options, and the rules that govern them.
Note that a facilitator is not the same thing as a custodian, but they could help you find an appropriate one. Facilitators may not do more than their name implies. If they should try to provide any assistance for which they receive compensation, they may cause an IRS Prohibited Transaction in your Self-Directed IRA account.