January 28, 2023

Custodian Review for Self-Directed IRA Investors

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The Self-Directed IRA Custodian

When sophisticated investors look to diversify their retirement portfolio they look at alternative investment choices or private placement securities.

Savvy investors looking to diversify their current retirement funds use self-directed IRAs as the vehicle for those alternative investments.

IRA investors Looking at their online portfolio

What are alternative investments? Real estate, precious metals, tax liens, or private lending are all alternative investment opportunities that you can purchase using your self-directed IRA.

But to start a self-directed IRA an individual must find a custodian.

A custodian is one who opens the account, manages the tax recording, helps you fund the retirement account with a rollover, accepts your yearly contributions, and assures that you are purchasing investments that are allowed by the IRS.

In this article, we will cover the self-directed IRA (SDIRA) and Custodian’s importance to investors. We’ll go into detail on the types of alternative investments available, along with how to choose the right custodian, fund your account, and discuss the pros and cons of a self-directed IRAs.

This is a review of the self-directed IRA and the relationship with the custodian and the account itself. Use our information to help decide. We do not provide investment advice and every investor should do their own due diligence.

Self-Directed IRA Benefits

Potential for High ROI

With alternative investment opportunities you can have high ROI for your retirement account.

Direct Control of IRA Account

LLC checkbooks allows you control. You have immediate access to the funds available to pay bills or buy more investments

Alternative Investments

SDIRA is the only account where you can invest in alternative investments with retirement funds.

What is a Self-Directed IRA (SDIRA)

An SDIRA is a retirement account for individuals who are looking to invest in alternative investments but wish to keep their investment dollars within an IRA.

With a traditional IRA individuals can purchase stocks, bonds, mutual funds, ETFs, etc. But with a self-directed IRA, an individual can purchase alternative investments outside the financial market.

Having the ability to purchase alternative investments, while keeping the same tax advantages as traditional IRAs, is a keen investment strategy.

Self-directed IRAs can be traditional IRAs (tax-deductible contributions) or Roth IRAs (investors take tax-free distributions).

There are no limits to the number of self-directed or traditional IRA accounts an individual can have. The yearly contributions stay the same, so any contributions must be according to IRS guidelines.

Therefore, as an individual investor, you could have a self-directed IRA for your precious metals and another for your real estate investments. With the right custodian, you may be able to have both alternative investment choices within the same account.

One of the main takeaways you should understand about a self-directed IRA is you should look at it as a business within an investment vehicle. The owner of the SDIRA can purchase assets and sell assets. But the owner of the self-directed IRA cannot directly benefit from the transactions.

The “business” or IRA account does the transactions, and the owner of the IRA gets the benefits once they start liquidating. The earliest age to liquidate without tax consequences is 59 and ½ years of age. Any withdrawals prior to that would have tax consequences.

What is a self-directed IRA Custodian or Trustee

What is a Self-Directed IRA Custodian or Trustee

A custodian or trustee is an institution that holds your IRA transactions. A custodian could be a bank, trust company, or other entity that is IRS-qualified and accepted to be an IRA custodian.

A traditional IRA or 401(k) have custodians but we don’t think of them that way. We speak with our broker, and they provide securities advice, IPO offering, and stock picks.

But a self-directed IRA custodian is prohibited from providing securities or investment advice. They are truly separated from the purchasing decision and provide no recommendations.

The custodian “holds” your alternative investments. By holding we mean they process the paperwork and sometimes purchase and sell the assets for you based on your direction.

What Alternative Investments Qualify for a Self-Directed IRA

When you want to invest in alternative investments but want to use retirement funds you need to set up a self-directed IRA. The benefit of the SDIRA is you can own alternative physical assets along with standard securities such as stocks, bonds, and mutual funds.

The most popular self-directed IRA is for real estate. But there are so many other opportunities for investors to consider. Here are a few alternative investment options.

  • Real Estate – single-family homes, condos, townhomes, 2-4 family multi-family units, apartment complexes, mobile homes, commercial property, industrial property, gas stations, salons, offices, and vacant land.
  • Trustee Deeds – aka mortgages
  • Traditional Securities – stocks, bonds, mutual funds, ETFs, other traditional assets
  • Precious Metals – physical metals (coins, bars) like gold, silver, platinum, and palladium
  • Cryptocurrency - digital currency
  • Invest in Startup Business – use your funds to invest in startups through Wefunder, SeedInvest, or StartEngine
  • Invest in Tax Liens – use your funds to purchase unpaid real property taxes from counties.
  • Foreign Currency – buying currency using forex.
  • Private Lending – use your funds to lend and turn your self-directed IRA into a bank. You can transact yourself or invest with a company that lends to individuals.

There are several potential investment opportunities that do not qualify for an SDIRA including life insurance, collectibles, artwork, antiques, or precious metals not meeting the IRS guidelines.

Make sure, if you are using an SDIRA checkbook, that the item(s) you are buying are qualified.

How Do I Choose the Right Custodian

Choosing the right custodian for you and your investments is not as easy as it sounds.

Start by deciding what investment you are looking to purchase. Now that you have determined which investment you want to start with, now go look for custodians that work with that asset class.

Working with custodians who do everything may be a problem. Make sure you do your due diligence before opening a self-directed IRA.

Here are a few questions to ask:

  • Is there a limit to the number of transactions I can do – there typically is no limit to the number of transactions – but there may be additional fees based on the number of transactions
  • Does My Self-Directed IRA come with a checkbook – not all accounts have checkbooks. Choosing to have one will make you more responsible for the decisions of the account. The checkbook allows you to purchase tax liens, real estate, and more without getting the custodian to fund the transaction.
  • Custodian Fee Structure – fees can be monthly or yearly, you may have an initial set up fee, monthly or yearly maintenance fee or a fee per transaction. Make sure you understand the fee structure before you decide to open an account.
  • Verify The Custodian Works with your Asset Class – this sometimes gets investors in trouble. Make sure the custodian has experience in your investment choice(s). It is better to pay more fees working with a custodian with experience than working with one less experienced and finding out there are IRS tax or other issues down the road.
  • Verify Reviews – read the reviews for the custodian – no reviews should be a red flag. The reviews also can help you understand if the company has experience in an asset field. Google business review, better business bureau, and others can help.
  • Verify the Company and look for Formal Complaints – Not only check their reviews, but also check for formal complaints with the better business bureau or your state.

Who Regulates Self-Directed IRA Custodians

The IRS regulates the type of investments you can make

The IRS regulates who is involved

The IRS regulates who can benefit from each transaction

The regulating state manages the custodian and will do audits to make sure they are in compliance.

What are Prohibited Transactions and Disqualified Persons

The IRS page on a prohibited transactions and disqualified persons will give you the details necessary to be an informed investor.

A prohibited transaction will vary based on the type of IRA account you have and are using. The self-directed IRA is used for alternative investments.

A disqualified person, by The Entrust Group,  is generally someone who cannot benefit directly from the investment. Restrictions are made for who is qualified and who is not qualified.

Most times SDIRA holder problems occur when, for example, a real estate investor leases or rents a property. If they take the rent directly without putting the money into the retirement IRA they are subject to additional taxes or fees.

Disqualified persons include:

  • You the Owner
  • IRA Owner's Fiduciary and Members
  • Spouse
  • Ancestor
  • Lineal Descendant
  • Any Spouse of a Lineal Decendant
  • A Beneficiary of the IRA
  • Investment Advisors or Managers
  • Any Corporations or Partnership (or estate you have 50% ownership stake)
How Do I Fund My SDIRA

Three Ways to Fund My SDIRA

Ready to invest in alternative investment opportunities using a Self-Directed IRA.

Take advantage or purchasing Gold and Silver Coins or Real Estate. Maybe tax liens or even investing in future startups.

The great part of this conversation is you can choose alternative investments when you use a self-directed IRA. Some of those investments may be an opportunity to make millions and others may be the opportunity to conserve and just divest some of your money into more favorable investments like gold and silver.

There are three ways to fund your self-directed IRA:

  1. You can fund your account with earned income. An SDIRA is no different from a traditional IRA you have the opportunity to invest $6,500 per year for those under 50 years of age and $7,500 for those 50 or older. The IRA contribution can be contributed to one IRA, or you are able to invest in several IRAs in the year. You cannot exceed the max contributions and you must use earned income from a job or business.
  2. The second option you can use to fund your self-directed IRA is through a rollover. If you currently have a traditional IRA or if you have a 401(k) or other retirement accounts from a previous employer you can roll over funds to the SDIRA with no tax penalty. The ability to use current retirement funds and transfer or roll over to a new self-directed IRA is one of the easiest and best ways to fund your account.
  3. A third way could be your current employer’s 401(k) or retirement account. You can check to see if they have an early withdrawal option without penalty. Some may have this opportunity if you are moving money into another retirement account or IRA without penalty. Check with your administrator who oversees the accounts to verify if this is an option and the process to move funds.

Who's the Best Self-Directed IRA Custodian

Choosing the best custodian for you will be hard as The Plug is not familiar with your alternative investment plans. But we have knowledge of several custodians that may help with your needs.

While these are a few suggestions, you need to look into other options before you make a final decision. Remember to verify they have experience with your alternative investment choice.

Best Real Estate Custodian

The Plug - Best Custodian for Real Estate Investing

uDirect IRA Services, LLC

  • Works with several Alternative Investment choices
  • 4 out of 5-star Yelp review
  • Established in 2009
  • Excellent Customer Service

Best Precious Metals Custodian for Investors Over $100,000

Precious metals IRA companies

Augusta Precious Metals

  • 1 on 1 Service
  • Harvard Grad - Education Director
  • Long History of Satisfied Clients
  • Best Education for Investors
  • FREE Shipping

Best Overall Custodian 

Best Overall Custodian for Self-Directed IRA

Rocket Dollar

  • FREE Guide to SDIRA Retirement
  • Pier-to-Pier Loans
  • Knowledgeable Support Team
  • New Broker/Dealer License
  • Solo 401(k) for Self-Employeed

Best Cryptocurrency Custodian

the Best IRA investing Custodian for Cryptocurrency


  • Industry Specific Knowledge and Experience
  • Low initial IRA @ $3,000
  • Funds available in 3-5 days
  • 60+ Cryptocurrencies available

Best Precious Metals Custodian for Investors over $10,000


Birch Gold Group

  • Best for New Metals Investors
  • Education Focused
  • Offer Gold, Silver, Platinum, and Palladium
  • FREE Silver - Qualifications Required

Best Platform Custodian

The Entrust Group the Best Online Portal SDIRA company

The Entrust Group

  • 40 Years Experience
  • $4 Billion in Assets Managed
  • 24/7 Online Portal Access
  • Mobile App
  • Excellent Customer Support 

How To Get Started with a Self-Directed IRA

There is typically a four-step process to starting an SDIRA.

  1. Investigate possible Custodians - once you know your alternative investment choice, now you start looking for the best custodian for that asset class. 
  2. Open an account and complete your self-directed IRA paperwork.
  3. Fund the account by either rollover or with a deposit of money from savings.
  4. Purchase the alternative investment asset.

The initial start of the SDIRA setup is quick and simple. You want to make sure you are working with a custodian that is unbiased and will complete the tasks and transactions in a reasonably quick manner.

8 Benefits of a Self-Directed IRA

There are several reasons an investor may choose to open and use a retirement account for alternative investments. Some of the benefits include:

  • Diversify Retirement Portfolio Outside the Standard IRA and 401(k) Limitations
  • Use a Retirement Account for Alternative Investments
  • Leverage Tax-Advantage of Retirement Account Set UP
  •  Potential for High ROI
  • Be Your Own Broker and Invest in Traditional Stocks, Bonds, Mutual Funds
  • Rollover Current Retirement Funds to Get Started
  • Direct Control of IRA Account - potential checkbook LLC
  • Potential Security for Bankruptcy - Retirement account can protect assets

5 Disadvantages of a Self-Directed IRA

Yes, there may be disadvantages to a self-directed IRA. If you are comparing a traditional IRA with an SDIRA you may find that there are more fees related to the self-directed IRA. 

  • The main issue for a self-directed IRA is the number of fees associated with the account. If you have an LLC with a checkbook you may have a fee for use, you could have a set-up fee, transaction fee, or per-asset management fee.
  • As a retirement plan, you need to start taking minimum distributions at the age of 72.
  • You need earned income if you are making yearly contributions. Investment income does not count for earned income and if you are looking to contributions yearly you will need earned income.
  • You cannot use the real estate assets personally. Therefore, your personal residence or lake house cannot be in your SDIRA. In addition, your spouse or your kids cannot occupy the property for free. Expenses related to real estate in the account must be paid from your SDIRA account. Repairs need to be fixed by a professional and paid through the IRA.
  • Real estate in IRA is not deductible personally. For those savvy real estate investors that like the tax deductions against their income, you lose out on these tax advantages. 

Final Thoughts on Custodians and Self-Directed IRAs

We’ve covered a great deal of information regarding the custodian and the self-directed IRA account. The information should be used as a tool and not used to finalize any decisions.

The custodian is a requirement for any self-directed IRA account. The account is managed by you, the investor, and the custodian’s responsibility is to make sure your paperwork is accurate, your purchase qualifies, and to manage the account.

The custodian is a manager, not an investment advisor. They cannot suggest or offer investment opportunities.

The fees can be high for a self-directed IRA with an LLC checkbook. Make sure your income potential covers any fees or maintenance to the asset and doesn’t take a significant amount of your profits.

If your profit is cut because of the transaction, maintenance, and management fee then you could have a situation that may suggest investing outside the retirement account.

The Plug hopes the information was educational and you can go forth with making better investment decisions. We recommend that every investor complete their own research and due diligence prior to investment.


My Responsibilities with a Self-Directed IRA?

Making sure the alternative investment choice is allowable under the IRS self-directed IRA investment guidelines. You choose the investments and buy/sell based on your discretion. 

When do I withdraw from my SDIRA?

Similar to traditional IRA and retirement plans you are able to start withdrawing at 59 and 1/2 years of age. You must start taking withdrawals at 72 and any withdrawals prior to 59 1/2 you will be taxed accordingly.

Can I Purchase Real Estate within my Self-Directed IRA?

Yes, you are able to purchase all types of real estate. You may not be able to live in the real estate or purchase 2nd or 3rd homes within your IRA. Understanding the IRS rules on real estate will help determine whether to buy within out outside your retirement account. 

Can I Set-Up my SDIRA Myself?

Yes, but you must use a custodian or trustee for a self-directed IRA account. The IRS is specifically to say you must have a 3rd party oversee the account for protection and oversight. 

Can I put my current real estate into my new self-directed IRA?

No, you cannot put any current real estate into a new SDIRA. You need to use the SDIRA funds to purchase the asset. 

Can I Buy Physical Gold or Silver in my SDIRA?

Yes, physical precious metals are allowable in a self-directed IRA. Once you purchase the metals you will have the metals stored in a vault or depository approved by the IRS.

Can I put my existing precious metals in my self-directed IRA?

No, IRS does not allow you to put any current assets owned into their SDIRA. If you want to add precious metals to your current or new Self-Directed IRA you must purchase using funds directly from the IRA and have them set to secured storage.

Can I Set-Up my SDIRA Myself?

Yes, but you must use a custodian or trustee for a self-directed IRA account. The IRS is specifically to say you must have a 3rd party oversee the account for protection and oversight. 

What Can I Not Buy With Using My Self-Directed IRA Checkbook?

Items not allowed in an SDIRA include, but are not limited to:

  • Life Insurance Policies
  • Selling, leasing, or exchanging property already owned
  • Lending to disqualified individuals
  • Collectibles
  • S-Corporations
  • Cannot use IRA funds for personal use (additional taxes and fees will apply)

Can I Self-Fund My Self-Directed IRA?

Yes, you may fund your SDIRA in two main ways:

  1. Fund using Earned Income. That is income earned from a job or business you own. You need to follow IRA guidelines and can only contribute yearly $6,500 for those under the age of 50 and $7,500 for those older than 50.
  2. Rollover from Existing IRA or Prior Employer 401K or other retirement funds. There is no limit for rollovers from one retirement account to another. Diversify your investments by transferring a portion of your current retirement account to a new SDIRA account. 

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