What is a SDIRA and how does it differ from a regular IRA?

Did you know that you can invest in other things besides stocks and index funds inside of your retirement accounts? How about gold or real estate? These alternative types of investments can be inside tax-sheltered accounts such as your Roth IRA or even solo-401(k). For this post, we will focus on self-directed IRAs (SDIRA), but similar principles apply to any other self-directed retirement account.

They are called self-directed because you direct the investments. You open a self-directed account at a custodian that allow SDIRAs. These custodians are not custodians like Vanguard or Fidelity. There is a long list of possible custodians, and I will mention two that I came across.

Why should you consider opening and SDIRA?

Since the Jobs Act of 2012, real estate syndications and crowdfunding are becoming popular investments. They offer the diversification of real estate without the hassle of direct ownership.

They come in two major flavors: equity and debt investments. Equity investments are where you own a share of the investment along with other investors. You reap the benefits of appreciation. Conversely, with a debt investment or debt fund, you are loaning money so that other people can buy real estate. Returns vary but can range from 8% and up. These returns are taxed at your marginal tax rates unless you invest in these inside an SDIRA. This is a perfect scenario for opening an SDIRA.

You can invest in actual properties inside SDIRAs, but for the most part, it is generally not recommended since directly owned properties have very favorable tax treatment.

So which custodians should you consider? There are dozens of self-directed custodians. Here are two that I recently looked at for myself.

What is an SDIRA and how does it differ from a regular IRA?

Strata

Strata Trust Company was founded in 2008 as a subsidiary of Horizon Bank, SSB. They specialize in Self-Directed IRA accounts and currently hold ~$1.5 billion dollars in assets. They offer three different SDIRA account options.

Precious Metals IRA

As the name implies, the Precious Metals IRA is for investing in precious metals like gold, platinum, and palladium. Here’s the fee breakdown:

Annual Fees:

  • $75 for assets under $100,000
  • $125 for assets over $100,000
  • $30 for mailed paper statements
  • $15 late fee

Storage Fees:

  • $100 for commingled metals
  • $140 for segregated metals (gold, platinum, and palladium only)

Account Set-Up Fees:

  • $25 electronically
  • $50 paper application

Processing Fees: 

  • $40 for precious metals purchase, sale, or exchange
  • $10 + estimated cost for shipping precious metals

Basic IRA

The Basic IRA account is for public investments such as brokerage accounts, public REITs, and bank CDs. There are less overall fees for opening a Basic IRA, but I do not recommend using self-directed custodians solely for this purpose. 

Annual Fees: 

  • $100 flat rate for assets
  • $30 for mailed paper statements
  • $15 late fee

Account Set-Up Fees:

  • $25 electronically
  • $50 paper application

Processing Fees: 

  • $40 for precious metals purchase, sale, or exchange
  • $10 + estimated cost for shipping precious metals

Flex IRA

The Flex IRA covers any alternative investments, which can include a combination of assets covered in precious metals and basic, real estate (including syndications and debt funds), trust deeds and mortgages, or any private investments. Here are the primary fees:

Annual Fees:

  • $175 if assets are less than $100,000
  • $200 if assets are between $100,000 and $200,000
  • $300 if assets are over $200,000

Asset Holding Fees: 

  • $100 holding fee for real estate holding
  • $50 holding fee for private investments
  • $30 for mailed paper statements
  • $15 late fee

Account Set-Up Fees:

  • $25 electronically
  • $50 paper application

Processing Fees: 

  • $40 for precious metals purchase, sale, or exchange
  • $10 + estimated cost for shipping precious metals

Each of the three accounts also have a variety of service fees that are charged on an as-needed basis, for example, if you need to stop a payment, wire a check, or terminate an account. For a full list of these fees, you can consult this chart. 

NuView

NuView Trust Company is another Self-Directed IRA custodian similar to Strata. However, their fee structures are very different. Here’s the breakdown:

Option One: Fee Based on Number of Assets

Annual Fee:

  • $295 per asset and/or liability (with a minimum of $295)

Account Set-Up Fee:

  • $50 upon application

Option Two: Fee Based on Total Account Value

Annual Fees:

  • $195 for accounts less that $15,000
  • $260 for accounts $15,000 – $30,000
  • $325 for accounts $30,000 – $45,000
  • $390 for accounts $45,000 – $60,000
  • $500 for accounts $60,000 – $90,000
  • $700 for accounts $90,000 – $125,000
  • $950 for accounts $125,000 – $250,000
  • $1,250 for accounts $250,000 – $500,000
  • $1,650 for accounts $500,000 – $750,000
  • $1,850 for accounts $750,000 and above

Account Set-Up Fee:

  • $50 upon application

All accounts include online account access, annual tax reporting, and access to educational and networking accounts at no additional charge.

I am not sure why anyone would pick Option 2 unless you held very little in assets, but that’s for you to decide.

All accounts also have a set of transaction fees based on need, which you can view here.

I will probably go with Strata for two main reasons. Lower fees overall and they have a relationship with Alpha Investing, where I currently invest in for real estate syndications.  I am considering opening a self-directed Roth IRA to start investing in debt funds specifically to avoid getting taxed at my marginal tax bracket.

Let me know if you currently have and love your self-directed custodian!

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