Ask the IRA Expert: Is It Worth the Fees for a Single Investment?

By John Bowens0 Comments

Question:

I’m looking at taking my money out of an IRA which only holds stocks and a mutual fund for the sake of purchasing a property. It would actually be a rental unit. However, I know self-directed IRAs have a different fee system and I’m only looking at one investment property. Is it worth the fees for a single investment?
 
Thanks,
Dennis T.
 
Answer:
 
Thank you for your question, Dennis. Fees are going to vary greatly depending on the custodian you choose. Equity Trust uses an all-inclusive fee schedule. We don’t charge you for each transaction and we don’t penalize you for only completing a single transaction. The annual maintenance fee for your account covers all your transactions. What actually determines your fee will be the portfolio value of your account and how that value fits into our tiered fee schedule.
 
Let’s say for instance, you owned a property in your IRA with a value of $120,000 and on top of that, you had $30,000 in cash in your account, perhaps to be used for maintenance or future investments. The total value of your account would be $150,000. This would fall neatly into our fifth tier ($100,000-$199,999). Therefore your annual fee would be $460.
 
This may lead some to believe that a single asset IRA would be better off with a custodian who charged per transaction. However, you have to be careful what is considered as a “transaction”.
 
Possible transactions may include:
  • Rent check deposits
  • Property management payments
  • Utility payments
  • Payments for maintenance work
With Equity Trust Company, we won’t “nickel and dime you” for each transaction whether it’s the purchase, sale, or maintenance of a property. It’s all included as part of your annual fee.
 
This may only be a single investment, but if it’s yielding a return, then a custodial fee may very well be a drop in the bucket compared to the profits you may potentially make in a tax-advantaged environment. It’s up to the individual to decide, of course, and you shouldn’t make such a calculation without the help of your tax advisor, but I can say that thousands of clients have found the self-directed IRA vehicle to be hugely beneficial and well worthwhile, even when they’re only working with one major investment.
 
Thanks again for your question, Dennis, and good luck!
John Bowens
 
Do you have a question about self-directed IRAs? Submit it to iraexpert@trustetc.com and it could appear in this blog!