Custodians of Individual Retirement Accounts (IRA) generate revenue by charging transaction fees, account setup fees, event-based administrative fees and an annual account value-based fee. In addition, asset valuation fees may also be charged as required to fulfill IRS reporting obligations.
Other essential considerations when choosing a custodian include which investments they accept as legitimate. Just because something has the stamp of approval from one custodian doesn’t guarantee its legitimacy!
Fees
Custodians typically charge fees for overseeing, recording and reporting account holdings – fees may include annual account maintenance fees, load charges for mutual funds or commissions for making trades. When selecting an IRA custodian, make sure they offer no-load funds with low or no trading fees as options.
If you plan to invest in alternative assets that are not publicly traded and therefore limited in financial information or liquidity, find out whether your custodian provides assistance for verifying them for accuracy and legitimacy; many self-directed IRA custodians do not provide this service.
As part of your custodial selection criteria, another consideration should be how quickly they process transactions and answer queries about your accounts. Communicating about servicing times and communication styles could save future frustration with an incompatible custodian.
Commissions
Custodians for Individual Retirement Accounts (IRAs) often charge sales commissions when working with investment advisers, in addition to managing fees for managing an IRA account. There are exceptions, though; investors buying real estate or closely held business can invest without incurring sales commission fees by selecting a self-directed IRA custodian.
Customers looking to invest in precious metals through an IRA can avoid commissions by choosing a custodian with a flat annual fee based on the value of their account. Furthermore, an excellent custodian should offer open communication channels between client and themselves and be knowledgeable regarding which assets can be invested in.
Self-directed IRA custodians should have extensive knowledge in regulations concerning prohibited transactions. Furthermore, they should have the capacity to quickly take advantage of time-sensitive investment opportunities. It’s also vitally important that they’re easy to reach and can offer quick servicing times.
Investments
IRA custodians may receive fees or commissions when they facilitate transactions between investors and third-party sellers, such as through brokerage firms or insurance companies, which act as intermediaries for investors seeking active investments like individual stocks and bonds, ETFs, mutual funds and premium annuities. Furthermore, some IRA custodians offer robo-advisor services which manage investments algorithmically.
Before selecting an IRA custodian, make sure that you research their investments and fees charged. Fees could include annual account maintenance fees, load fees (charged on mutual funds), or trade commissions.
If you’re interested in investing nontraditional assets such as real estate or private equity, be sure to find an IRA custodian who offers these options. Many IRA custodians limit these investments to a select few “approved” assets which they sell or purchase themselves and may require that an outside facilitator is hired for vet such investments and carry out necessary administrative duties.
Liquidity
Investors should avoid custodians who require too much paperwork in order to open and manage an account, and look for one with an intuitive online portal and knowledgeable specialists to answer questions regarding investments options and fees.
Traditional IRA custodians tend to be banks, brokerage firms, or trust companies; investments for traditional IRAs tend to include relatively low-risk assets like mutual funds and exchange-traded funds. Self-directed IRA custodians allow more diversified investing including real estate, precious metals and cryptocurrency as well as peer-to-peer lending platforms and promissory notes.
IRA custodians typically earn revenue through transaction and annual management fees, asset-specific fees, monthly maintenance fees, flat asset holding fees or combinations thereof; additionally they may charge an administrative fee to process manual transactions. As per IRS requirements, custodians have an annual obligation to report the value of assets held within their custody – making fulfilling this reporting requirement simple for brokerage firms with real-time market valuation systems that generate second-by-second market values.
