Self-directed IRA custodians have access to account holder's funds, so it is important to choose someone who is trustworthy, reliable, and competent. The custodian is responsible for maintaining records, submitting information to the IRS, preparing statements and explaining the rules of the IRA to the client. Make a list of self-directed IRA custodians, and investigate each one thoroughly before signing up as a client.
A self-directed IRA custodian must be some form of banking institution, including a bank, credit union, savings and loan, trust company, or a licensed non-bank custodian. The first step in choosing the best custodian is to ask to see the custodial document from the custodian. This document, IRS form 5305, is documentation that the company is permitted to act as an IRA custodian.
When you make the initial contact with an IRA custodian, ask for the regulator's contact information. Many of the questions you ask the custodian are also good questions to ask the regulator. It is important that the answers you get from the custodian align with the information given to you by the regulator.
Some questions to ask both potential self-directed IRA custodians and regulators are what the value of customer assets held are, and how long the company has been in business. Ask the custodian if they outsource their administrative work. While many companies do this routinely, it is important to realize that these subcontractors do not receive the same regulation as self-directed IRA custodians. The strictest oversight is in companies that perform all duties in-house or contract to a wholly owned subsidiary of the custodial company.
Ask potential custodians what type of insurance they carry. It is important that any undirected funds be protected by FDIC insurance. The company should also have liability insurance as protection in the event of errors and omissions. Ask potential custodians if they provide educational seminars for their clients. Many do, but it is important that they are legitimate educational resources, and not used as a way to sell investments.
Contact the Better Business Bureau in the area where the potential custodian is located. A quick phone call or visit to their website can determine if the company has complaints lodged against it, how many, and how they were resolved. Take time to read the biographies of the board of directors as well as the company's principles. Look for a diverse group of members, rather than a board that contains several family members.
