You already know you have options for establishing your self-directed IRA. These choices are utilizing the services of a Custodian, an Administrator or a Facilitator. Learn more about the Administrator business model including sample fee structures for two nationally-leading self-directed Administrators.
An Administrator handles the formation and maintenance paperwork required for your IRA. Some Administrators actually handle your money and accept deposits as well. In this regard, an Administrator actually acts like a middle man between the IRA account owner and the bank (custodian) where the deposits are eventually held. Your IRA Administrator may actually prepare account statements, etc. as well.
Allowing an Administrator to handle your IRA funds can be potentially problematic for three reasons:
1) Your IRA account assets are often pooled with other people’s accounts which could subject your funds to additional liability;
2) Asset pooling can sometimes result in the Administrator taking much longer to follow through with your transaction directions than it would take when dealing directly with a custodian (e.g., there can be confusion over who to talk to-Administrator or custodian);
3) There is no strict IRS, banking or other regulator overseeing Administrators.
“An Administrator Ensures my IRA’s Compliance with IRS Prohibited Transactions” — Think again. Many clients believe this, but, generally speaking,this is not correct. Your IRA Administrator simply will adhere to your instructions and will not verify that your investment meets or complies with any IRS regulations. Don’t believe it? Read the language in any IRA Administrator application….they clearly absolve themselves from any such responsibility.
Want Checkbook Control of your IRA Funds? — In many cases, you can be offered the ability to have checkbook control of your retirement assets. But here is the funny thing….even though you may have checkbook control of your IRA funds (through a legally established IRA LLC), the Administrator typically will still charge annual fees for fees such as account balance, account maintenance and transaction fees. So, do you really have all of the advantages associated with an IRA LLC where you have checkbook control of your IRA assets? Right, probably not. Similar to a Custodian, you might ask yourself why an Administrator is charging you annual fees when you are controlling your own IRA LLC checkbook.
Need your IRA Funds in a Timely Manner? — If you do not have checkbook control of your IRA (through an LLC), that may or may not happen depending on when you need an investment choice funded. However, won’t most agree that when your IRA LLC checkbook is in your desk drawer, that is always going to be faster than making a request of an Administrator for the same funds?
Administrator Fees — Are you prepared for annual fees for your IRA? In addition, are you prepared for annual account balance fees, annual account maintenance fees, transaction fees, miscellaneous fees and termination fees? Review an [illustrated] example of annual fees from a leading Administrator on a hypothetical investment purchase. Remember, when you are reviewing the example, ask yourself, “Do I want to pay these fees every year and still not control the IRA checkbook?”