Larry
The Self Directed IRA Custodian you ultimately choose to use should be the best fit for what you are trying to accomplish.
There are a number of high quality custodians out there. They all have strengths and weaknesses. We have done a fair amount of research and due diligence for clients on different qualified custodians. There is no one size fits all custodian out there to my knowledge.
There are many factors you should consider in this process. I have listed a few of them to point you in the right direction:
1) Specialization: while some custodians specialize in traditional investments (stocks, bonds, and mutual funds), others specialize in alternative investments (real estate, private mortgages, tax liens, livestock, private businesses, or other non-traded security). Some custodians do both or claim to do both. While we are always looking for new custodians who have particular specialties, we have yet to find one which does everything well.
2) Assets: it will depend on the amount of assets you intend to keep in the account. If you have too little, then your returns might be significantly impacted by the fees you ultimately have to pay. Although I would not suggest putting the amount in this post, the number "it will be small" is too ambiguous to make a suggestion here.
3) Number of transactions: it will depend on how many transactions you predict to have in the account annually. If you are buying one piece of real estate in your IRA, then your choice might be different than if you make 100 transactions buying different tax liens or other private lending transactions. Some custodians charge an amount based on the amount of assets and others charge per transaction. Be aware that when you are estimating your transaction fees, that some charge a fee to purchase an asset and a fee to sell it (just like with a traditional broker).
4) Misc Fees: almost all of the custodians we have researched charge some sort of misc fees. This can be for things like: fed funds wires, notarizing documents, document storage, account setup fees, statement fees, transfer fees, account termination fees, servicing fees such as writing a check, processing documents, etc
5) Service: This is one of the most overlooked areas in the research process. However, it is difficult to determine high quality service since you have to have had an experience with the custodian to know how this affects you. Service from the custodian is important because many investments require a timely response for requests. If you own real estate in your IRA then the custodian needs to pay the bills by writing checks, and depositing checks from rent or other income from the property. This can have implications if the service is lacking or slow to respond. You will have to learn from others experiences to accurately judge this metric.
In conclusion, it makes sense to always do your research. If you have a smaller amount of assets as you suggest, then it may be even more important to analyze each custodian. It may not make sense to use your retirement account if the fees are too high as a percentage of your account assets. While there are a number of things to consider when using a self-directed IRA custodian, the most important thing to remember is to find one which works best for you.
One final note: While using your retirement funds to invest in an area in which you are an expert is a smart idea, it should also be noted that this process carries an extra amount of risk as well. Custodians, by law, are not allowed to give advice, so you should not rely on them exclusively to educate you whether you are creating prohibited transactions. Please contact a professional advisor or attorney who thoroughly understands this process.
Kirk Chisholm
