Many people mistakenly believe that if they have an account with a self-directed IRA custodian they are receiving the following benefits:
- Structure analysis for potential prohibited transaction
- Structure advise for maximum benefit
- A reliable source of information
- Tax advice
- IRS resolution advice or representation
- Investment autonomy
- Low fees
The reality and reasons are as follows:
- Custodians cannot and will not provide advisory services to clients. They only act as a depository and reporting agency to the IRS.
- As above the custodian is prohibited from providing information on investment structure or how to maximize return on investment.
- Because custodians cannot and will not provide advice they sometimes relay information onto investors that reflect their policies rather than IRS regulation. Unfortunately the statements are never preceded with “this is our policy” their statements always sounds like IRS code.
- Custodians cannot offer any advice for tax issues such as UBTI
- If you are audited you are on your own or with your current tax advisor unfortunately that can be very expensive and there are very few professionals that understand this portion of the code.
- As in explanation number 3 the custodian may not allow certain investments and once again there may be no IRS issue it is just policy.
- With most custodians your are charged in several different ways and each of the following may bring the total cost to 2% or more of the account value. These fees may include but not limited to:
Asset value fee
Transactions fees (per check cost)
Investment evaluation fee
What is the solution? The IRA LLC which provides advisory services plus a one-time set-up fees and truly a low cost annual custodial fee. To learn more click here.
