Pricing

Most of the big brokerages offer self-directed IRA options within the asset class of stocks and mutual funds. The degree of involvement of the brokerage can consist of merely serving as a stock buying platform to actively manage a fund. The fees charged for these services can take many forms. Here is a partial listing:

• Front-end Load – A fee charged as a percentage of the funds coming in.
• Back-end Load – A fee charged when you take money out of the IRA.
• Commission – The brokerage may get a commission on certain products that you invest in. You don’t pay this directly but it can definitely impact the profitability of your investment.
• Management Fees – This is a catch-all fee that can cover administration and fund management. It is often calculated as a percentage of your funds.

If you choose to go the Wall Street route and invest with a brokerage, make sure you do your due diligence and know the fees beforehand. If the Self-Directed IRA is promoted as having no fees in a certain area (i.e. “zero transaction fees”), then know that the fees are being made up elsewhere.

If you invest with a Custodial Self-Directed IRA, you will usually enjoy a low setup fee and moderate annual fee (see below). The fees following that generally fall into two categories. Some Self-Directed Custodians work with asset-based fees. Within that structure, your Self-Directed IRA will pay a quarterly or annual fee that is a direct percentage of the assets that it contains. The bigger your retirement account grows, the higher the fee. This kind of fee schedule is often the least economical for a Self-Directed IRA.

The second kind of fee schedule that Custodians offer is one that includes transaction-based fees. That means you’ll only pay as you perform transactions (e.g. paying a maintenance worker.) With the transaction fee model, real estate investments can quickly rack up a heavy fee count because of the number of transactions involved. However, single transaction investments (like investing in a third-party start-up) can do very well.

A Self-Directed IRA LLC starts with a bigger upfront fee because of the labor involved in setting up the account and LLC. However, the associated checkbook allows the account to completely bypass any transaction fees. This means that it is ideal for an actively managed real estate investment. With a Custodian account, a heavy transaction load could run $300-$400 a month, while in the IRA LLC model those fees wouldn’t exist. The only other fee that the IRA LLC will be required to pay is the moderate annual fee charged by the Custodian holding the account.

There is no one answer to this question. The numbers will change based on the type of investment, as well as on the account holder’s interaction with it. The best way to get clarity is to start by deciding what kind of asset you would like to invest in. Then, you can speak to a professional familiar with that asset and get a sense of the required interactions with that asset. Armed with that knowledge you can proceed and compare the competing fee schedules to see which one is most economical.