Investors with Individual Retirement Accounts (IRAs) are increasingly opting for self-directed IRAs (SDIRAs) as they offer the opportunity for higher returns and greater diversification. SDIRAs permit investors to own a range of assets beyond the conventional stocks, bonds, ETFs, and mutual funds that are typically held in traditional IRAs. By investing in assets like real estate, privately owned businesses, precious metals, foreign currencies, private loans, cryptocurrencies, and commodities, SDIRA investors who are prepared to take on more risk have the potential to generate significantly higher returns.
However, not everyone is suitable for SDIRAs. Despite providing investors with greater control and flexibility in their investment options, SDIRAs demand an extensive level of investment knowledge and acumen that surpasses the capabilities of most investors. Moreover, unlike conventional IRAs that are comparatively simple, the establishment, administration, and investment in SDIRAs can be rather intricate. For this reason, it is crucial to collaborate with an experienced SDIRA company that possesses the expertise and assets necessary to navigate investors through the procedure.
Using key criteria such as investment options, fees, ease of account setup, and customer service, we assessed a dozen of the leading self-directed IRA companies to determine the best in six distinct categories.
What Is a Self-Directed IRA?
An SDIRA, also known as a self-directed individual retirement account, is a unique account established by a custodian or administrator, enabling individuals to invest in a wide range of alternative investments. Some commonly chosen investment options include real estate, precious metals, privately-owned businesses, cryptocurrencies, tax liens, and private loans. Other than the flexibility in investment choices, SDIRAs share similarities with traditional IRAs in terms of tax benefits and contribution restrictions.
Investors are responsible for conducting thorough research on investment options as custodians do not offer investment advice. This lack of guidance makes investing in SDIRAs particularly risky. Moreover, the complex rules and restrictions associated with establishing and investing in SDIRAs increase the chances of an IRS audit. When it comes to setting up or investing in an SDIRA, it is always advisable for investors to seek guidance from a tax advisor.
What Does a Self-Directed IRA Cost?
The majority of SDIRA custodians have three types of fees: a setup fee, an annual administrative fee, and a transaction fee. Among the custodians we reviewed, the setup fee can vary from $0 to $360. The annual administrative fee is typically based on a sliding scale according to the size of the investment account, ranging from $150 to over $2,000. However, a few custodians in our review offer more competitive administration fees, such as a flat monthly fee of $15 or a flat annual fee of $360.
On our list, there are a few custodians who do not impose a transaction fee, unlike the majority who typically charge between $35 and $250 per buy, sell, or exchange based on the transaction’s size.
The 6 Best Self-Directed IRA Companies of 2023
BEST OVERALL
Equity Trust
Equity Trust has established itself as the leading SDIRA company, with over $34 billion in invested assets and a track record dating back to 1984. With its extensive experience, investment expertise, and commitment to customer satisfaction, Equity Trust is undoubtedly the top choice for SDIRA providers.
Equity Trust has a considerable amount of experience in the competitive SDRIA industry, which plays a significant role. Drawing from this experience, they have developed a comprehensive offering backed by excellent customer service, earning them our recognition as the top SDIRA provider overall.
Equity Trust began by focusing on real estate investments as it ventured into SDIRA investing. Over time, it expanded its reach to encompass a wide range of alternative investments such as private equity, precious metals, tax lien certificates, cryptocurrencies, and foreign currencies. While it was initially established as a securities firm, Equity Trust now allows SDIRA investors to engage in stock trading, bond investments, and ETFs.
Equity Trust may have slightly higher annual administration fees compared to other companies, ranging from $225 to $2,250 depending on investment numbers or account size. However, it stands out by not imposing any transaction fees, which benefits investors conducting numerous transactions throughout the year. The fee to set up an online account is $50, whereas using a paper application incurs a $75 fee.
BEST FOR AUDIT PROTECTION
IRA Financial
If you invest in SDIRAs, the IRS may carefully examine your finances. However, IRA Financial offers reliable support in case you face an audit, which is why we consider it the top SDIRA firm for audit protection.
Founded in 2010, IRA Financial is establishing itself as a leader in the SDIRA industry by distinguishing its commitment to clients who may face an IRS audit – a factor that led us to select it as the top choice for SDIRA audit protection.
The intricacy of SDIRA structuring and transactions can attract attention from the IRS, which is why it is crucial to choose a firm that will provide support. This firm was founded by a group of tax experts who possess extensive knowledge of the numerous regulations and limitations associated with SDIRAs.
IRA Financial provides a checkbook IRA that allows individuals to access a wide range of alternative investment opportunities, such as real estate, precious metals, private equity, private loans, foreign currencies, and cryptocurrencies. While IRA Financial does offer SDIRAs without checkbook control, their checkbook IRA not only offers a greater selection of investment options but also proves to be more economical.
Opening a checkbook IRA LLC requires a $999 establishment fee, and clients are charged an annual custodian fee of $360. There are no transaction fees associated with buying, selling, or exchanging investments.
BEST FOR REAL ESTATE INVESTING
uDirect IRA
The company uDirect IRA initially focused on specializing in SDIRA real estate investments. It continues to maintain this expertise, which is why we consider it to be the top SDIRA company for real estate investing.
uDirect IRA, the preferred SDIRA company for real estate investments, was established by seasoned professionals in the real estate industry. They provide a checkbook IRA solution that offers a diverse selection of investment opportunities, primarily focusing on real estate assets including real property, real estate notes, REITs, and tax lien certificates.
uDirect’s checkbook IRA not only offers a diverse selection of real estate investments but also allows investors to explore a comprehensive range of investment options such as closely held companies, private loans, accounts receivable financing, judgments, legal settlements, and precious metals. By having checkbook control, investors are able to respond promptly to real estate auctions and the availability of tax lien certificates.
The fees for uDirect SDIRA are quite affordable. They have a $50 fee for setting up an account, and an annual fee of only $275 for their record-keeping and reporting services. Additionally, they charge $35 for transaction fees, but the first six transactions are exempt from this charge. Investors are also required to pay a monthly fee of $8 to $18 for the storage of precious metals or currency.
BEST ONLINE PORTAL
The Entrust Group
Clients with The Entrust Group who have self-directed individual retirement accounts (SDIRAs) can utilize a unique online portal for hassle-free transaction management. The Entrust Client Portal includes a special section called Entrust Connect, which not only facilitates smooth transactions but also offers a wide range of alternative investment options. This exceptional online platform makes The Entrust Group the top choice for SDIRA companies.
The Entrust Group has become one of the industry’s most reputable SDIRA companies since 1981. What sets Entrust apart is its ability to serve clients directly or through a financial advisor. Regardless of the chosen route, clients can utilize an online platform to manage investments and explore potential investment opportunities. Additionally, the platform seamlessly integrates its advisor portal with eMoney Advisor, catering to investors seeking comprehensive retirement planning. This is why we consider Entrust the top SDIRA company with an exceptional online platform.
Entrust is committed to its responsibility as a custodian and makes an effort to educate investors, providing courses and a wide range of online materials that aim to educate both investors and advisors on self-directed IRAs and alternative investments. The only drawback is that Entrust does not offer checkbook control, which grants clients greater investment flexibility. Nevertheless, it does offer resources to help clients establish their own checkbook LLC.
Entrust’s fees are comparable to those of other SDIRA companies. It requires a $50 fee to set up an account, and the annual administrative fees are determined based on the number of assets or the account size, ranging from $199 to $2,299 per year. Transaction fees for buying, selling, or exchanging assets can vary from $0 to $250.
BEST INVESTOR EXPERIENCE
Alto IRA
Alto IRA, a newly established player in SDIRA investing, has developed a user-friendly and efficient automated method for investing in alternative investments. As a result, we consider Alto IRA to be the top SDIRA provider in terms of providing an exceptional investor experience.
Alto IRA has been striving to democratize SDIRA investing in alternative investments, empowering all investors in their pursuit of higher returns and diversification for their IRAs since 2018. Hence, Alto earns its spot as the top SDIRA provider, offering the most favorable investor experience.
For most investors, setting up and investing in SDIRAs can usually be a complex and relatively costly endeavor. However, Alto’s technology platform, which can be adjusted according to one’s needs, changes this scenario for investors by offering a simple and affordable automated process.
Alto’s platform offers investors a diverse array of alternative investment options, including partnerships with real estate lending firms, cryptocurrency exchanges, angel investing funds, and various other providers. By utilizing Alto’s checkbook IRA, clients can exercise utmost control for enhanced management of their real estate investments. In addition to SDIRAs, Alto also caters to traditional IRAs, Roth IRAs, and SEP-IRAs.
BEST FOR LARGER PORTFOLIOS
Rocket Dollar
Rocket Dollar, a relatively new player, has brought several innovative SDIRA investing options to the table. One of these includes a fixed $15 monthly administration fee, which proves to be highly beneficial for larger portfolios.
Rocket Dollar, established in 2018, has already established itself as a prominent player in the SDIRA industry. In terms of investment options and user-friendliness, it stands up against top competitors. However, for investors with substantial portfolios, such as those with IRA rollover accounts or SEP-IRAs and Solo-401(k)s with significant annual contributions, it proves to be the most economically viable choice for an SDIRA.
Rocket Dollar automatically sets up a checkbook LLC for clients, enabling them to access a wider range of investment opportunities. Aside from traditional alternatives like real estate, precious metals, cryptocurrencies, and private equity, Rocket Dollar has collaborated with multiple crowdfunding platforms to provide options such as crowdfunded real estate and peer-to-peer loans.
Rocker Dollar stands out with its distinct fee structure, which can greatly appeal to investors with substantial portfolios due to its non-dependence on asset value for cost calculation. Rocket Dollar implements a fixed monthly fee of $15, while its setup fee amounts to $360, which may be higher than its competitors but is a singular, one-off expense. For those seeking exceptional services, investors have the option to pay a $600 setup fee and a $30 monthly fee for a Rocket Dollar Gold account.
5 Reasons to Consider a Self-Directed IRA
Investors can use a self-directed IRA, similar to any other IRA, as a tax-advantaged retirement account to accumulate wealth for their retirement.
Self-directed IRAs stand out because they provide the opportunity to invest in a broader selection of assets beyond the typical investment choices such as stocks, bonds, and mutual funds, thus granting more freedom and flexibility.
Five potential benefits of a self-directed IRA
1. With a self-directed IRA, you can take control of your financial future.
Who else can choose the best way to achieve your goals for your retirement than yourself?
Equity Trust offers a self-directed IRA that grants you full autonomy over your account, allowing you to make all decisions and invest in areas you are knowledgeable about and feel comfortable with.
Similar to other IRAs, a self-directed IRA is not connected to an employer, unlike certain retirement plans such as 401(k)s, 403(b)s, Thrift Savings Plans, pensions, etc. This makes it your personal retirement account with broader investment choices.
If you switch jobs, it is possible to transfer the funds from a previous employer’s 401(k) or other qualified plan into a self-directed IRA, allowing you to keep saving and investing for retirement no matter where you go in life or your career takes you.
You can have a self-directed IRA without having to switch jobs, as well as have an IRA alongside your current employer-sponsored plans such as a 401(k) or pension.
You don’t have to be alone if you choose to be “self-directed”. It is recommended that you collaborate with a reliable advisor, CPA, or financial professional to assist you in making retirement planning and investment choices. With a self-directed IRA, you have the authority to select the most suitable approach for yourself.
2. Self-directed IRAs allow you to invest beyond the stock market with more investment options.
Equity Trust’s self-directed retirement account stands apart from IRAs and other qualified retirement accounts at different financial institutions due to its enhanced liberty and versatility in investing in both alternative and traditional asset classes.
There is a lack of awareness among several investors that they have options beyond stocks, bonds, and mutual funds for their IRA investments. They can explore opportunities such as real estate, notes, private equity, precious metals, private stock, and a diverse range of “alternative” investment options.
The investments that are prohibited are only specified in IRS Publication 590, as stated below.
- Collectibles (such as art work, rugs, antiques, gems, stamps, certain coins, etc.)
- Certain Precious Metals*
- Alcoholic beverages
- Life insurance policies
An exception is granted to allow a retirement account to contain bullion made of gold, silver, platinum, and palladium as long as they fulfill the minimum fineness criteria.
As long as the rules set by the IRS for retirement plans are adhered to, generally, other forms of investments are allowed. For further details, refer to IRS Publication 590 and Internal Revenue Code 4975.
3. Self-directed IRAs can provide tax advantages.
If one adheres to IRS regulations, a self-directed IRA or qualified retirement account can offer various tax benefits. There exist two primary IRA types – Traditional IRA and Roth IRA – each possessing distinct characteristics and tax advantages. To obtain information on both accounts, refer to the comparison chart.
Regardless of whether you have a Traditional IRA or a Roth IRA, the funds and investments will remain in a tax-advantaged environment until they are distributed from the account after reaching the age of 59½.
Any earnings, gains, or value increase from an investment made in a self-directed account are not subject to taxation and do not contribute to your taxable income for the year, as they are directed back into the IRA.
Let’s take a hypothetical example to illustrate the potential advantage this could offer in a single investment. Suppose an investor acquires a property for $125,000, spends an additional $25,000 on renovations and expenses, and then sells it for $200,000 within a year.
By utilizing a self-directed IRA instead of personal funds, they could save $50,000 in taxes on the $200,000 sale, based on a marginal tax rate of 25 percent. Additionally, the $200,000 would directly go back to their IRA for future investments, instead of being considered as taxable income within the current year.
The potential of tax advantages that come with a self-directed IRA grows substantially over time. By allowing funds to return to the IRA without being subjected to taxes, the saved amount can be further invested in alternative opportunities and accumulate within the tax-advantaged environment rather than being handed over to the IRS.
A different hypothetical situation is presented to showcase the potential of tax-advantaged, compounded returns when utilizing a self-directed Roth IRA.
Suppose an individual at the age of 40 invests $50,000 in a Roth IRA. Throughout the next two decades, they attain an annual rate of return of 8 percent while being subject to a marginal tax rate of 25 percent. The depicted graph highlights that the tax-advantaged, compounded returns within the Roth IRA yielded an excess of $72,000 compared to conducting identical investments outside of an IRA within the same 20-year period.
4. Self-directed IRAs can serve as an untapped source of investment capital with the potential to positively impact communities.
Another advantage that real estate investors, business owners, and individuals investing in alternative assets outside their IRA could benefit from is the ability to utilize IRA, 401(k), or other qualified retirement funds (whether owned by oneself or others) as supplementary capital for their business or investment prospects.
With over $12 trillion invested in IRAs across the country, there is an enormous amount of capital available in retirement plans.
If investors become aware of self-directed retirement accounts and collaborate with an advisor or financial professional to assess its suitability, they could potentially access the extensive IRA market worth trillions of dollars.
In addition to its main goal of generating tax-advantaged wealth for retirement, a self-directed IRA has the potential to make a positive impact on others through its investments.
Equity Trust clients have demonstrated remarkable endeavors with their retirement accounts, benefiting both themselves and others. These endeavors encompass revitalizing underprivileged neighborhoods, creating affordable housing options, and supporting local businesses, thereby potentially augmenting communities in a positive manner.
5. Self-directed IRAs can be used to create a tax-advantaged legacy for your family, loved ones or charity.
The potential benefits of self-directed IRAs can be extended beyond one’s own lifetime.
When you pass away, you have the option to choose one or more beneficiaries for your IRA. You have the freedom to designate your spouse, children, grandchildren, charities, or any other individuals whom you wish to inherit your account.
In general, when a retirement account is inherited, any cash and assets that remain inside the account are given tax benefits and can be distributed to the recipient. To illustrate, suppose a Roth IRA is passed down containing $50,000 in cash and $150,000 worth of rental properties generating $1,500 in monthly rent.
In this instance, the recipient has the opportunity to freely distribute the entire sum of $50,000 in cash if desired, without incurring any taxes. This is possible since the funds are held in a Roth IRA and all necessary qualifications have been met. Additionally, the recipient has the privilege to receive $1,500 each month in tax-free rental income from the Roth IRA. Alternatively, they also possess the choice of retaining the funds within the account and continuing to invest them according to their preference.
It is advisable, as usual, to seek advice from a tax attorney or financial expert in order to receive assistance with estate planning and to understand the regulations regarding beneficiaries.
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