The custodian plays a key role in the self-directed IRA and is required by law. Choosing the right one is an important decision that must take into account not only the fees charged, but also the reputation of the custodian, the type of investment that will be held in the account, and the accessibility and responsiveness that can be expected from the custodian.

Just as a bank holds funds on deposit for the benefit of a depositor, the basic function of a custodian is to hold title to the assets held in the retirement account for the benefit of the account owner. With a self-directed IRA, the custodian transacts business related to the asset on behalf of the retirement account at the direction of the account owner. For example, if the retirement account has rental properties, the custodian would not only cash rent checks, but also pay insurance, taxes, maintenance, and repairs directly per the account owner’s instructions. Some investment firms and banks act as custodians; however, most limit their services to holding publicly traded securities and cash. If you intend to hold real estate or other types of assets in your Self-Directed IRA, it is essential to locate a custodian who specializes in “non-traditional” retirement investments.

The fees charged by custodians for their services vary widely, both in type and amount. While one should not select a custodian based solely on fees, it is important that all potential fees are clearly understood before establishing the account. The types of fees typically charged by custodians include: (1) a single account “setup fee”; (2) the periodic “maintenance fees” for the account, which may be a fixed amount or a percentage of the value of the investment; (3) “transaction fees” that are assessed each time the custodian is required to process a transaction related to the asset; and (4) a “termination fee” that is assessed when the account is closed.

An important consideration when selecting a custodian for a self-directed IRA is knowing how and where undistributed cash assets will be kept. Unless the custodian is also a bank, it will not be subject to FDIC regulations; however, most custodians keep funds deposited in FDIC-insured accounts. There should be a clear understanding of where undistributed cash assets will be held and to what extent funds will be secured.

Responsiveness and ease of communication with the custodian is another critical factor to consider. When choosing a custodian, you should ask how often account statements are updated; whether they can be accessed online; and whether a single account representative will be assigned to the account who is familiar with the account and the investment, and can answer questions or take calls directly. When holding investment real estate, it can be extremely helpful to choose a custodian who can provide personal, individualized service and who can respond quickly in situations that require immediate payment from vendors or other immediate action.