Self Directed IRA Custodian Fees – Why Are They Charged?
You may have wondered why you should pay your custodian any fees at all, especially when you are self-directing your IRA account.
Alternatively, you may have been led to believe some custodians don’t charge fees, but in fact, the very opposite is true. In the end, every custodian is paid to manage your account in one form or another.
[0:13] Terry answers a pressing concern raised by a Dallas News article: Why is there a difference in cost between a self directed IRA custodian vs. other types of administrators?
[0:53] How do the different types of IRAs make money from managing your account?
[1:31] Self directed IRA custodians, such as Sunwest Trust, don’t sell anything, so they do not make money on commissions or referrals.
[2:00] Every custodian, bank, or broker charges you, but the custodian fee is the most obvious.
[2:25] What about no-load mutual funds? How do they cost money?
[3:03] Sunwest Trust has a single fee, which goes toward the up keeping of records, regulations, and expenses.
[3:36] Does the fee increase if you have more money in your self directed IRA?
[3:59] What if you have other questions about the video or IRAs? Get answers quickly with the comments box below the video!
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IRA Custodian vs. Bank Fee Comparisons
Every IRA — whether it’s at a brokerage house, bank or self directed IRA custodian will have fees associated with its administration.
- Banks accept your money — for example, the money you put into a CD — and lend it out for a fee.
- Brokers earn a commission on every transaction and earning you make — for example, the buying and selling of stocks and bonds.
- A loaded mutual fund (in other words, they charge you a fee) might earn you 5 percent, but after the fund manager’s 1 percent fee, your net income from the fund is 4 percent.
- A true self directed IRA custodian, on the other hand, doesn’t sell anything, nor does it earn any commissions, so it charges a flat fee for its service.
So, in the end, every service provider charges you; it’s just that the charges banks and brokers put on the account aren’t as obvious as those of self directed custodians. We don’t tack on fees to every transaction we make. Here at Sunwest Trust, we charge a simple, up-front annual fee to do the reporting, keep the records and all other administrative duties.
“FINRA (the Financial Industry Regulatory Authority) expressed … that ‘some broker-dealers’ communications that discuss fees may not be fair and balanced, and could be misleading.’” — Robert Powell, retirement consultant
What About IRA Commissions?
Here at Sunwest, we never make a commission on any of your investments because we do not sell or recommend anyone investment over another. We don’t earn points on your CDs, nor do we limit your investments to solely the assets we can benefit from. As a self directed custodian, we allow you to invest in anything that the IRS does not prohibit AND we don’t make commissions on them.
We have been offered enticing commissions on referrals to brokers or Third Party Administrators (TPAs), but we are NOT open to that idea.
As a custodian, it is not our job to steer you towards any investments. We choose to stay neutral in the decision-making process and facilitate the investments at your specific direction, once you have made your decisions. We prefer to allow you to fully self-direct your own IRA account.
An IRA Custodian’s Duties Explained
As mentioned previously, our fees cover expenses related to:
- Record keeping.
- Managing annual Fair Market Valuation requests.
- Preparing statements.
- Sending out 1099s for individuals who accept a distribution from their IRA.
- Facilitating the process of managing Required Minimum Distributions (RMDs) from IRA.
- Mandatory IRS reporting, e.g. Form 5498.
- Expenses related to being a regulated entity (every custodian and audited, while third-party providers and TPAs might not be).
- Keeping up with State and Federal regulations.
- Facilitating custodial duties, including transfers, managing rollovers and making investments on behalf of your IRA at your self-direction.
Sunwest Trust’s Custodial Fees
Sunwest Trust charges a flat fee, no matter the size of your account, which is in stark contrast to some of the larger custodians, who charge a fee based on the account’s asset value. At Sunwest Trust, there’s no difference if you have a $100,000 account or a $10 million account; it’s the same yearly fee.
Sunwest Trust isn’t the cheapest custodian in the market, but we aren’t the most expensive either. Sunwest Trust’s annual fees are just $275 a year. We pride ourselves on providing a simple, flat rate fee for our clients so they can keep ahold of more of their investment earnings. If you are curious about our fees, you can review our transparent fee schedule.
Why The Lowest Fees Don’t Always Add Up
IRA account expenses are found in all brokerages, banks, and TPAs, and they are truly unavoidable due to the everyday cost associated with running a business. Most of the more traditional IRA accounts’ owners will be charged three times the amount, whether they are aware of it or not. They are charged account fees, brokerage fees and investment fees. However, at Sunwest Trust, we have tried to simplify the process as much as possible with our up-front, flat-rate fee.
“Many firms are now waiving their annual ‘account fee,’ but that in no way means your IRA will be free.” — Chad Griffeth, co-founder, and president of BeManaged
Shop around, look for a reputable custodian, compare fees between custodians, and ensure that you will get what you’re paying for before rolling over or transferring an IRA. Don’t let hidden fees and commissions take you by surprise. RELATED: What are Sunwest Trust’s IRA Fees? Check the footnotes and all other small print. Look for minimum balances required in order to avoid certain fees. If there are no account opening fees, see what the fees are too close an account instead. See if there are fees related to standard office tasks, like wiring money, sending faxes, etc. Even if the yearly fee is waived, see how much of a fee is tacked onto each individual transaction.
As you can see, promises of no fees or waived fees can blow so much smoke in your eyes that you miss the true cost of housing your IRA account, due to a custodian’s misleading marketing methods. Do your due diligence so that you can move your IRA money to a custodian you will be happy with for many years to come.
- No IRA account is ever free.
- Expect to pay reasonable administrative fees for your self directed IRA account.
- See an IRA custodian’s list of responsibilities with your account.
Summary of Recommended Resources:
- Market Watch No Free Lunches, No Free IRAs
- Tech Crunch FeeX Raises $6.5M Series B To Identify Hidden Fees In Users’ Retirement Accounts
- Financial Web Don’t Get Robbed of Your Retirement: Hidden IRA Fees
Full Video Transcript:
Hi, my name is Terry White, CEO of Sunwest Trust. This is Tuesday at Two. Thank you for taking the time to watch. Today, we’re talking about an article that I found through my Google Alert. It’s out of the Dallas News and it goes along with a question we get asked a lot.
As a self directed custodian, we allow you to invest in anything that the IRS does not prohibit, but we do not sell any investments, nor do we do recommend any investments. And because we don’t sell them or recommend them, we don’t make commissions on any investment.
In fact, if we’ve ever had a situation where someone said, “Hey, if you’ll refer your clients, your IRA clients to us, to invest with us, then we’ll pay a commission,” we do not do that. We stay completely away from that.
But every IRA, whether it’s at a brokerage house, at a bank or at a self directed IRA custodian, charges some kind of fee for the IRA. Now, they may not call it that. If I’m a bank and you’re putting money in a CD in your IRA, obviously, the bank can then take that money and lend it out and they make a proportionate fee. They make money on your money that’s sitting in the CD in the IRA.
If I’m a broker and you buy stocks and bonds from me, I make commissions on the sales, on the transactions, and on the buying and selling of those stocks and bonds. I get paid for my IRA that way.
If you’re a self directed IRA custodian (like we are and like several other companies out there are), we don’t sell anything and we don’t earn any commissions, so we have to charge a proportionate fee for our service. Here at Sunwest Trust, we charge an annual fee of $225 to do the reporting, to keep the records, and essentially do all the things that we have to do as a custodian in order to provide you an IRA account.
We get that question all the time, “Well, what do you do for the $225? Why do you charge me?”And so the answer is clear; everyone charges you, it’s just that the charges that everyone puts on the account aren’t as obvious as they are with self directed custodians because we can’t hide the income that we make or the charges that we have inside of commissions or inside of our ability to do something with your money like a bank would.
I hope that answers your question. People talk about having no load mutual funds and that kind of stuff. They still charge fees because there’s a fee taken out before your return is eventually given to you. You might have a mutual fund that is a loaded mutual fund (in other words, they charge you a fee), you might earn 5%. And then they charge you a fee, so your net income is actually 4%, for example. You might have a no load fund where the fund earns 5%, the fund manager takes 1% and then you’re left with 4%. Well, you got a four without a load, but the load was in the five that they made.
I hope that makes sense to you. Because a self directed custodian doesn’t sell anything, we can’t hide fees in that way. We charge you a fee right upfront annually. And that fee is for us keeping the records, the expenses that are involved in being a regulated entity like every custodian is (not necessarily third party providers, TPAs). Every regulated custodian has costs associated with being regulated. And then we have IRS reporting that we have to do and the record-keeping that we have to do. That’s what we charge for.
And here at Sunwest Trust, at least we charge a flat fee. It doesn’t matter how big your account is. Some companies will charge you a fee based on the asset value and your account, but we just charge a simple, flat fee. If you have a $100,000 account or if you have a $10 million account, it’s exactly the same price.
I hope that this has answered some of your questions, maybe some that you’ve thought about that you haven’t asked. We’d appreciate it if you have comment about this. Put those down in the box below. We’d love to hear from you. We look forward to bringing you more information on our next Tuesday at Two’s. And please take the time to comment, go to our website, watch some of our other videos. We thank you very much for tuning in today.
Why Do I Pay Custodian Fees for a Self-Directed IRA? was published on: