Self Directed IRA Fee Structures

When researching self-directed IRAs, you’ll find that there are three basic fee structures.

  1. The first is based on transaction fees. In this model there is a low set-up fee, and the account holder pays a transaction fee for every action subsequently taken by the IRA.
  2. The second structure is based on the dollar value of assets that the IRA possesses. The more assets that are held, the higher the annual fee.
  3. In the third structure, the Checkbook self-directed IRA, there is a higher initial set-up fee, but there are virtually no fees afterwards.

Obviously everybody would like to choose the fee structure which affords them the greatest possible savings. However, even with that thought in mind, it’s not always so obvious which of the three fee structures will accomplish that. A number of factors can determine how much is eventually charged, and they include value of the invested assets, frequency of transactions, and degree of investor involvement. It’s best to run the numbers for your specific investment and see what makes the most sense.

Practical Application

To get a better grasp of the situation, let’s take a look at a standard self-directed IRA investment, and then figure out what it would cost in fees for each of the three models.

Donna switched jobs and took the opportunity to rollover her 401(k) into a self-directed IRA. She used her retirement funds to purchase a two family house at the cost of $450,000. She then rented it out. Property management includes paying standard bills (electric, water, etc.), grounds maintenance (mowing and snow removal), and taking care of the occasional plumber call. Additionally (as with most properties) the house needed some initial rehab before being put on the rental market.

Year One

In this scenario, the first year fees would break down as follows. (These dollar values are taken from the industry’s leading provider for each platform.)

Transaction Asset Checkbook
Set-up Fee $50 $50 $1,395
Other Fees $180Custodial Account

$50

Asset Purchase

$960

Expense Payments

(4 checks/month at $20 per x 12)

$975(All inclusive according to property value.) $100Custodial Set-up

$180

Custodial Account

Total $1,240 $1,025 $1,675

Year Two

The second year will see lower fees as set-up and property purchase are no longer on the table. You’ll also notice that the Checkbook control fees significantly drop.

Transaction Asset Checkbook
Fees $180Custodial Account

$960

Expense Payments

$975(All inclusive according to property value.) $180Custodial Account
Total $1,140 $975 $180

Year Three

In the third year, most fees remain constant with one big exception. At this point, rental income has combined with a modest rise in property valuation to move it to the next level for asset fees. Take a look at the jump.

Transaction Asset Checkbook
Fees $180Custodial Account

$960

Expense Payments

$1,600(All inclusive according to property value.) $180Custodial Account
Total $1,140 $1,600 $180

Three Year Total

Now let’s add it all up and find out the total fees for the three year period.

Transaction Asset Checkbook
Total $3,520 $3,600 $2,035

Ten Year Total

If we extend that to ten years, the fee totals look like this:

Transaction Asset Checkbook
Total $11,500 $14,800 $3,295

As you can see, it pays to run the numbers on your own self-directed IRA investment to find out which fee structure will work best for you.