Self-Directed IRAs and 401Ks – Watch the Fees!

For those here long enough to read some of my past posts, you know that I have spelled out the differences between a self-directed custodian, administrator and facilitator. No sense re-hashing all the differences now, but we will keep it simple. To the layman, the difference between a custodian/administrator to a facilitator typically is perceived as the difference in fee structures and the ability to control (write your own investment checks) your own retirement account. Typically, custodians and administrators control the funds and the “checkbook”, whereas the facilitator model typically establishes your plan for a one-time fee and you control the “checkbook.”

Without getting into a long dissertation on the other, more salient differences, in comparing whether you should establish a self-directed plan using any of the aforementioned formats, typically the final decision by the individual will boil down to those two primary issues (fees and control of the account). All models have their potential pros and cons, but the choice is clearly yours as the consumer.

Fee Schedules

In making a decision based in part on fee schedules, individuals must always compare “apples to apples”. The custodian/administrator model will always (initially, anyways) have lower fee structures as compared to a facilitator model; however, those fees charged by the custodian and administrator are annual fees, not a one-time fee, and they DO add up over a relatively short period of time. Not to mention as well that they do not give you full control of the account. Oh, finally, they also do not assume any responsibility for your plan’s compliance with IRS regulations. Custodians and administrators will not only charge you annual transactional and account balance fees, there are many other “additional” fees that they can and typically do charge the client.

Interestingly enough, without identifying the custodian, let’s look at a self-directed custodian and the kinds of fees they charge for. These are ALL transactions you, the account holder can do yourself and, in most cases, for no fee — and you control the account, as well. Be prepared, the list isn’t necessarily short:

Transfer Funds Within IRA
Termination of IRA, Partial
Termination of IRA, Complete
Roth Conversion/Re-characterization
Roth Re-characterization for conversions done at different custodian
Contributions/Dividends/Payment
Distribution / Withdrawal / Investments / Asset Acquisition / Miscellaneous
Distribution, Regular Retirement Stream, Each
Quarterly paper account statements
Mail forwarding

….think we are done…..uh, no

Overnight Courier Delivery, Letter Envelope
Cashiers Check
Returned Check/Insufficient Funds
Stop Payment
Copy of sent or canceled checks
Change of account type
Reversal of fees for alternate payment method
Re-producing tax documents
Document Research or Production
Deposit Research

….do you think we can stop the list at 20 potential fees? Would like to, but….uh, no

Rush Fee For 24 Hour Expedite Requests
Hourly Rate For Extraordinary Services
Wire Transfers – Outbound
Wire Transfers – Inbound
Document Review
Storage Fees

….now, I think this is it, unless of course you want to review the “fine print” (e.g., keeping the interest or majority of the interest on your non-invested funds)…didn’t think so.

So,

this isn’t to say that these fees shouldn’t be charged by a custodian/administrator, but the bigger question is why would you want to pay those fees if you don’t have to?

Ultimately, if you are considering a self-directed IRA or 401K, you have to elect the format that makes the most sense to you. What you want to do is to execute an “apples to apples” comparison and, ultimately, elect the model and format that makes the most sense to you.

This entry was posted in 401(k)'s & IRA's, Uncategorized on by .

About John Park

John Park is a facilitator for self-directed IRAs and 401Ks and founder of PGI Agency, Inc. which is host to PGI SelfDirected. Prior to that, John maintained his own insurance agency and also worked in intercollegiate athletics (Arizona State University, Big Ten Conference Office). For over 6 years, PGI has established both self-directed IRA and 401K accounts so that individuals can take control of their retirement assets and invest in both Traditional and Non-Traditional (e.g., real estate) assets. John believes that most people should fully explore having FULL control of their retirement funds and be the steward of their own money.

One thought on “Self-Directed IRAs and 401Ks – Watch the Fees!

  1. Aunty

    John,

    I needed to find you 20 years ago – but then you were probably still in preschool.

    They say the best time to plant a tree was 20 years ago. The next best time is today. So I’ll take today, and thank you.

    So, very glad to have found you recently (thanks Bawld Guy) and get our self directed Roth IRA going in the way we want it going – self directed, low fees, with an expert like you to guide us – amazing how much we didn’t know.

    Prior to, I trusted everything our banker told us about retirement funds and funding. And yet they would always say “but you should ask a retirement specialist”. Huh? For years our money didn’t work for us – our money was working for the bank and banker. Then, we were “advised” to transfer funds into one of the biggest IRA custodians because we would be able to self direct the account and buy real estate. Nice company, great emails, but those fees would kick in on a quarterly basis – not as noticeable or painful that way. Lots of little fees, for every little thing. But, they were nice…. even when we closed the account.

    Which I am glad we did, and glad we signed up with you, and very glad to have your advice and expertise.

    Aloha from Aunty

    Reply

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