Having a self-directed IRA can be the cornerstone to reaching your long-term retirement goals. Of course, investing isn’t free. In general, you can expect to pay two different types of fees; those associated with maintaining your account at your chosen custodian, and those relating to the investments you make within your account. Let’s take a closer look at the different types of fees and expenses that can apply to a self-directed IRA.
Annual Account Fees.
In most cases, you can expect to pay more in annual fees for a self-directed IRA than you would for an account with a traditional custodian such as a bank or discount broker. But this is certainly a case of “you get what you pay for.” With those other IRAs you’ll be significantly limited in the types of investments you make, and you won’t be able to execute a full retirement investment strategy.
Some self-directed IRA custodians offer different fee options, allowing you to choose between a flat annual fee, or a fee based on your account size, or perhaps even a one-time fee that covers your account for as long as you maintain it with that custodian.
Precious Metals Custodial Fees.
One of the reasons many individuals choose a self-directed IRA is because of the investment opportunities it provides, including real estate, private equity, and precious metals. But account holders are not permitted to possess any of the precious metals investments themselves, so it’s necessary to retain the services of a professional custodian who specializes in that type of physical precious metals management.
Real Estate Management Fees and Carrying Costs.
If you make a real estate investment with your self-directed IRA, then you’re likely to have some degree of ongoing financial liability to be able to carry and maintain that property. A residential real estate investment, for example, is likely to involve some degree of property and tenant management expertise (and remember that if you do this personally you can’t reimburse yourself with funds from your account), as well as repair expenses, appliance and water heater/furnace maintenance. Even if you hold an undeveloped property as a long-term speculative investment you’ll still likely face annual property taxes.
Due Diligence Fees.
In addition, before acquiring any real estate interest, and before investing in any private company through a debt or equity position, you’ll want to conduct some level of due diligence on the the potential investment. The scope of this due diligence will depend not only on the nature of the investment, but also on the size of your anticipated investment.
The due diligence might involve a real estate inspector and/or appraiser, other qualified industry experts, and potentially also lawyers or other legal advisers.
If all of this sounds a bit overwhelming, remember that the majority of these fees apply only when you choose to make certain types of investments in your account. If you choose relatively straightforward investments like publicly traded stocks and bonds, then your fees will be low. But if you decide to leverage the full potential of your self-directed IRA by investing in things such as precious metals, real estate or private equity, then (just as you would if you made those same investments with a taxable account), then you can expect to pay more in transaction-related expenses.