What is a Self-Directed IRA Custodian?
By Jordan Sheppherd
Substantially, a “self directed IRA Custodian” is no different than any other Custodian. An IRA is technically a trust, and any Custodian is technically the trustee of that trust. As a result, since the trust is not a person and cannot make its own decisions or sign anything, the trustee is responsible for carrying out or facilitating whatever action the IRA is going to take. This is why you must submit your investment decisions to the Custodian. You make the decision on what you want your IRA to purchase, but the Custodian carries that decision into effect by facilitating that investment. So, if you want to buy stock, it is the Custodian that actually makes the purchase.
The vast majority of Custodians have internal restrictions on what kinds of investments they will facilitate. Even though it may be legal for an IRA to make a hard money loan, the Custodian may refuse to do that. A self directed Custodian is a custodian that places very few restrictions on an IRA’s ability to invest. The self directed Custodian will generally allow the investment, so long as that investment is allowed by IRA law.
For the record, every Custodian places restrictions on IRAs that it oversees, but a self-directed Custodian places far fewer restrictions on an IRA than some of the bigger Custodians like Fidelity or Vanguard.
With a CheckBook IRA LLC, you get even more control over your retirement account. The least amount of control you can get is to have an IRA with a Custodian like Fidelity, which internally limits your investment choices. The next level of control is to move that IRA to a self directed Custodian, who places far fewer restrictions on your ability to invest than Fidelity. You may have more control, but you’re still on the hook for transaction fees, assets fees, and you have to run everything through the self directed Custodian for every single investment. So, a self directed IRA is better, but not by much.
The third level of control is with a CheckBook IRA LLC. With this structure you maintain checkbook control over your IRA funds. You are able to write checks, wire money, sign contracts, and make investment decisions without going through the hassle of running all the paperwork through the Custodian. Make hard money loans, invest in rental real estate, commercial real estate, trust deeds, tax liens, precious metals, and do it all by simply making a decision and writing a check or sending a bank wire. This gives you the opportunity to invest in what you know without waiting on the Custodian at every turn. As an added bonus, you won’t have the transaction fees or asset fees to deal with either, because with an IRA LLC you have no transaction fees or asset fees.
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Invest intelligently. Enjoy the rewards.