Are you wondering what makes a custodian the BEST? Are you wondering what questions to ask when searching for a self-directed IRA custodian? You are not alone, and we are here to help. We will break down the top characteristics you should be looking for when selecting the right custodian to custody your retirement account and what questions you should ask when completing your research. In this article, we will discuss the ins and outs of IRA custodians that custody alternative investments. While Preferred Trust Company believes in the value of our services, we encourage you to conduct thorough due diligence to find the self-directed custodian that best aligns with your retirement objectives.
Who Can Custody My Retirement Account?
Banks
Banks can be a familiar choice for your retirement account. They offer investments such as mutual funds, CDs, and money market accounts that are insured by the FDIC. These investment types are often considered a ‘safer’ investment choice. Banks are limited in the investments they can offer, so ensuring that the investment options are right for your portfolio is important. Keep in mind that most banks only hold traditional investments and cannot custody alternatives.
Insurance Companies
Insurance companies are a less common IRA custodian choice because of the limited investment options. Most insurance companies primarily offer annuities as their main investment option. This may be beneficial because it combines a traditional investment with an insurance guarantee; however, annuities often come with higher fees and are more complex.
Mutual Fund Companies
Mutual fund companies are appealing if you are looking for a wider selection of investment options. A mutual fund consists of diverse risk profiles and investment options. You may be paired with a financial advisor, but some mutual fund companies have limited account features and the potential for higher fees.
Brokerage Companies
If you want more control over your retirement account but assistance with investment selection, a brokerage account may be a good option for you. They offer multiple investment options such as stocks, ETFs, and bonds. A brokerage account can offer more flexibility and lower fees. Experienced investors may select a brokerage company as one of their investment options.
Robo-Advisors
Robo-advisors are not very common. These platforms do not provide human interaction, and all investment management is done by an automated, algorithmic system. Often, because these platforms do not provide human interaction, the return on investment is lower and sometimes non-existent. A robo-advisor will provide digital financial advice based on mathematical rules.
IRA Custodians for Alternative Investments
When you are searching for the right custodian to hold custody of your alternative investments, consider the following.
- What types of investments are they able to custody? The alternative investment world is vast, and there are many different types of investments. Depending on your strategy and financial goals, this question will be important. If you are searching for a custodian for alternative investments, traditional brokers and investment companies are not licensed to hold these types of assets; similarly, a self-directed custodian is not licensed to hold publicly traded investments. Below is a list of a few alternative investments that are allowable in a self-directed IRA.
- Real Estate – Rental Properties, REITS, and Trust-Deeds
- Private Equity – Investments into companies that are not publicly traded, startup companies
- Precious Metals – IRS-approved silver, gold, palladium, and platinum
- Digital Currencies – Bitcoin, Ethereum, and XRP
- Private Debt – Promissory Notes
- Are they a custodian or an administrator? There is a significant difference between the two. The definition of custodian is a person with responsibility for protecting or keeping something in good condition. It is the responsibility of your self-directed IRA custodian to protect your retirement assets. A custodian must safeguard and hold your assets within the IRA and ensure that the retirement account is following IRS regulations and staying compliant. An administrator is responsible for the administrative tasks associated with the IRA, such as reporting, record-keeping, and paperwork. An administrator is not licensed to hold your assets and can only assist with the transaction processing of the account. The IRS states that an IRA must be held by a custodian, a bank, or another organization that has been approved by the IRS to serve in the capacity of a custodian. Unlike your standard custodians that offer brokerage accounts, a self-directed IRA custodian can help you build a portfolio through alternative investments.
Alternative Asset IRA Custodians
A self-directed IRA means simply that you, as the client, have complete control over the alternative investments that you select. This is unlike a traditional retirement account, where you may have a financial advisor who chooses your investments based on your financial and investment goals. Traditional IRA accounts often yield more conservative returns compared to self-directed IRAs, which include alternative and non-publicly traded assets. Your custodian works on your behalf, operating behind the scenes to help ensure your retirement investments remain compliant with IRS regulations. They facilitate your investment transactions and handle all required reporting.
What is important to you when finding the right self-directed IRA custodian? When selecting a custodian for your retirement account, it is essential to ensure that compliance, tax reporting, and auditing are handled with the highest standards. The custodian you choose should offer a full range of benefits to you, as the client, and work to keep your retirement dollars secure. Be sure to evaluate factors such as fees, audit protection, online portal functionality, company website, and overall performance when researching custodians. Lower fees may be appealing, but it is equally important to consider the company’s compliance practices. Are they taking the necessary steps to ensure your retirement account remains qualified? The IRS imposes specific rules and regulations for self-directed IRAs, and strict adherence to these guidelines is critical. Failure to comply could put your retirement dollars at risk. A compliant custodian helps manage this complexity, reducing the burden of understanding intricate tax codes and penalties associated with non-compliance.
What are their current clients saying? Have you looked at the reviews for the custodian you have been researching? You can learn a lot about a company, its employees, and their processes based on client reviews. It is recommended to review feedback on reputable sites such as the Better Business Bureau. Often, reviews on non-reputable websites cannot give you the overall picture of the company’s customer service. Do they offer 24/7 account support, or are they only available during traditional working hours? Custodians operate like a bank, and most often have banking hours, although some companies may have a dedicated client service line for questions day or night.
What educational resources do I have access to? It is important to ensure that clients are well educated on what a self-directed IRA has to offer and the types of investments that are allowable. Look for a custodian that offers educational articles, videos, webinars, podcasts, courses, and newsletters. Blogs, like this one, are extremely helpful in understanding investment strategies.
How responsive is the custodian you’re researching? You may have several questions regarding IRA-related issues, and your best bet is to call and secret shop the custodian directly. Do they answer the phone, or do you have to leave a voicemail? If so, how long does it take for them to call you back? Keep note of these things. A responsive custodian should be available to answer your questions and get back to you promptly. Pay attention to the quality of the interaction. Are they knowledgeable, courteous, and helpful? These early impressions can give you insight into how they handle client relationships long term. Your retirement dollars are important, and you should take the time to ask questions, do research, and learn all you can about the custodian you decide to work with. Retirement savings are crucial for your future, and choosing the right IRA custodian is a key part of planning for your retirement. Understanding how a custodian prioritizes responsiveness and client service will help you feel more confident in selecting the right fit for your investment goals. Look for a custodian that is committed to service excellence, education on alternative investments, and providing the resources needed to help you build your portfolio successfully.
Conclusion
Choosing the right self-directed IRA custodian is one of the most important decisions you will make when it comes to securing and growing your retirement savings, especially if you’re considering alternative investments. While many institutions can technically hold custody of an IRA, not all custodians are created equal. From understanding the difference between custodians and administrators to evaluating compliance standards, client support, investment flexibility, and educational resources, each factor plays a critical role in protecting your future.
Take the time to ask questions, compare options, read reviews, and assess the responsiveness and professionalism of each provider. Your retirement dollars deserve to be managed with care, compliance, and clarity. The custodian you choose should empower you with the tools, resources, and services needed to confidently pursue your investment goals.
IRA custodians are not financial advisors or tax professionals. Custodians cannot tell you what investments to choose or how to manage your portfolio. The decision-making falls on the account owner, while the custodian is responsible for ensuring your IRA follows the IRS guidelines. For more detailed tax-related questions, you should contact your CPA or tax professional.
