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.

We’re always happy to answer questions, so feel free to contact us at any time.

Invest intelligently. Enjoy the rewards.

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    1. Gil

      Why is it that other Custodians won’t let people do these kinds of investments with their IRA money? I used to have an IRA with Fidelity, and one of the brokers actually told me it would be illegal to purchase real estate in my IRA.

      I moved to a different Custodian, and am now thinking of doing the IRA LLC setup, but just as a point of curiosity – why don’t they let you invest outside the stock market? It doesn’t make much sense to me.

      Love the site. Your posts are very informative.

      • CheckBook IRA - Jordan

        Hi Gil,

        Thanks for the compliment. We’re working hard on the site and blog to provide useful information to prospective and current clients. If you see something we can improve, by all means let us know.

        My experience has led me to believe Custodians restrict those investments for two reasons. First, they make a lot of money recommending investments to their clients. Second, to put in place a system that would facilitate investments like real estate, gold and silver, tax liens, etc… would be too much of a hassle for them. They can handle most of the investments they offer electronically, but a lot more is required when dealing with non-traditional investments.

        It’s a smart business decision on their part to restrict their clients’ ability to invest, but in the end it doesn’t benefit the client very much. Not that there isn’t money to be made in the stock market, but not everyone is an expert in that area. It always irritates me when brokers tell their clients it is illegal to buy real estate in their IRA. I speak from experience when I say that 95% of all brokers who work at those large Custodians don’t know the IRA rules from a hole in the ground. They’ll tell you all sorts of things, but if it’s not on their cheat sheet, they generally flail around helplessly.

        Let me know if I can answer any questions regarding the setup of an IRA LLC. I’ll be more than happy to familiarize you with the process and brainstorm with you regarding possible investment opportunities.

    2. kevin brannon

      I have about $380,000 in a 401(k) with a former employer and in a roll-over IRA. I want to re-invest this as follows: $100,000 in common stock in a privately-held company where I am to be employed as the CEO and serve as 1 of 5 directors, $50,000 in a convertible note secured by equipment and A/R of another privately-held company where I will sit on the Board, and the balance (about $230,000) in no-load index funds from Fidelity, Vanguard, Schwab or USAA.

      Can I do these investments in a self-directed IRA through you? How quickly can I do the roll-overs (I’d like to do the private investments ASAP)? What will it cost? What would be the next steps?

      • CheckBook IRA - Jordan

        Hi Kevin,

        Based on your situation, I think it best we speak over the phone. The no-load index funds are straight-forward enough and could be done through a brokerage account opened in the name of the IRA LLC, but the common stock and convertible note transactions need to be looked at carefully in order to ensure a prohibited transaction will not occur.

        A CheckBook IRA generally takes 3-4 weeks to set up from start to finish. Much depends on the State in which the LLC is to be formed, as some States take rather a long time to process the filing to form the LLC. The timeliness of the rollover of your 401(k) will depend on the particulars of the 401(k) administrator’s plan document. Some plans require 30-90 days notice, while others will facilitate the issue of a rollover check as soon as the rollover request is processed. The transfer of a rollover-IRA will generally take two weeks or longer, although it can be done faster depending on the willingness of the transferring Custodian to process the request and move quickly on the transfer.

        You can contact us at 1-800-482-2760 or jordan [at] checkbookira.com

    3. Ken

      I want to roll my checkbook IRA from mutual funds to a deferred annuity. I am 65. Do I still need a custodian when all I have is the annuity?

      • Jordan Sheppherd

        Hi Ken,

        Generally companies that offer annuities will serve as the Custodian to the annuity account. That’s a long way of saying, if you plan on moving everything over to an annuity, you can just use the annuity company as the Custodian. Hope that helps.