KEYTLaw Home
AZ Law Home
IRA Library Home
Top 50 IRA Qs
Pick Custodian
Convert to Roth
IRA Millionaires
IRA Flowchart
Roth IRA Flowchart
Ed Slott on IRAs
Uniform Life Table
J & S Table
Single Life Table
Keyt & PENSCO
EP Prep Service

You are here: Home  IRA & Retirement Plan Library

How To Pick an IRA Custodian for Self Directed IRAs

All custodians are not alike. In fact, not all companies offering IRA servicing are regulated, nor are they necessarily custodians. Legally, however, all IRAs have to be held by an entity that is either a bank, credit union, trust company, or savings and loan; or an entity that is licensed and regulated by the IRS as a "non-bank custodian."

Individuals and organizations not so chartered and regulated are not permitted by law to hold IRA assets. If an IRA asset is held (physically or by way of vesting or registration) by a non-qualified person or entity, the IRA asset is deemed to have been distributed as a taxable distribution to the IRA owner (possible penalties if the individual is under the age 59.5).

Thus, it is very important to determine that the IRA servicing firm with which you place your assets is under the supervision of a regulator, or can prove that they are using a custodian that is.

I. Major Selection Criteria

A. Make sure the organization is regulated as either a bank or non-bank custodian:

1. Ask for evidence such as a bank charter document;

2. Ask for regulatory contact information;

3. Ask both the company and the regulators for the value of customer assets under administration;

4. Ask both the company and the regulator how long the company has been regulated;

5. Some IRA "administrators" (that are not custodians themselves) use other financial institutions as the custodian. Only the actual custodian is regulated in these cases, and there is generally no oversight of the detailed operations conducted by the administrator itself. Many companies that have been set up like this have been shut down over the years for improper or illegal operation. Look for companies where the administrator is also acting as the custodian, or where a wholly-owned subsidiary or parent performs one of the functions. In the case of a regulated custodian, the regulators are looking at all of the customer cash, assets, as well as the company's policies and procedures, which must be in compliance with state and federal regulations.

6. Ask how much insurance the company provides and carries for FDIC or SIPC errors and omissions, general liability, etc.

7. Check the Better Business Bureau in their area to assess the number of complaints filed and how they were dealt with. The BBB will report the number of complaints and comment on how they were resolved. You just need to use the company's local phone number to inquire when calling the local BBB. Make sure you are calling the company's headquarters and not the local office.

8. Ask who the company's outside auditors are and contact them to get an outsider's opinion.

9. Check to be sure that all the answers generally agree between the regulator and the entity. If not, ask and if you don't receive a reasonable explanation, move on to the next custodian. Serious factual differences are examples of an integrity issue. Integrity is the single most important issue in financial services today.

10. Ask for references from customers. Generally, most institutions will not be able to provide references from retail customers due to privacy considerations, however, most will be able to provide, wholesale, legal, accounting, and trade references. Check them out.

11. Finally, ask for the biographies of the principals, including key officers, and for the membership of the Board of Directors and their biographies. A company run by a Board of family member owners and/or insiders is generally more of a concern than an independent Board. Also, look for extensive financial services experience in the officers.

II. Knowledge

A. Read the company's marketing and web-site material to see if you can understand it. Remember that self-directed IRA custodians cannot legally offer advice nor can they sell you investments. They simply execute your instructions to buy or sell based on the investment choices you make. Therefore, if the documentation seems to offer advice or non-objective sales pitches, beware.

B. Decide if you think the material is professional and detailed and look for corroborating evidence (e.g., references to actual IRS regulations, etc.).

C. See if the company provides ongoing education at no or nominal charge. Avoid those that appear to be in the seminar or infomercial for profit market.

D. Check to see if the company has an extensive product and service list in areas not directed related to what you need in service. Specialists devoted to your area of interest and therefore, depending on those services for their income are likely to do better for you than generalists. Generalists can divest or de-prioritize your area of interest which can results in reduced or eliminated service.

E. See if the company provides free educational material.

F. Call their offices and ask questions of their staff and judge the quality of the answers. Check another custodial candidates' staff's answers in order to make an informed decision.

G. Look for evidence of media coverage indicating that they are a respected authority.

III. Service

A. Check to see what their standard operating procedures and delivery goals are for new accounts, transfers-in, purchases, sales, funding, distributions, IRS reporting, statement production, phone contact, web-site capabilities, etc.

B. See how they inform you about activity in your account (e.g., by mail, e-mail, by the Internet (lookup), by written statement (frequency?) etc.

C. Ask about whether they have a dedicated customer service department.

D. Ask them what their service goals are and what actual experience has been recently.

E. Ask about the forms and processes necessary to use their service (e.g., accessibility of forms).

F. Ask about a dedicated marketing and sales group.

IV. Cost

A. Ask them for an explanation of their fees and to provide you (e.g., by the Internet), access to their fee schedule. See if their fee schedule is prominently displayed on their web-site. Sometimes there are hidden marketing fees paid to franchisors, either paid directly or indirectly.

B. Explain your plans for investing and ask them to explain what their charges will be.

C. Remember, you pay for what you get in life. If you want the best service it won't come cheaply. If you are comfortable with inferior service, etc., there will be a low cost producer in every industry and that's no different for IRA custodians.

V.  Richard Keyt Recommends PENSCO Trust Company

Arizona estate planning and business attorney Richard Keyt recommends PENSCO Trust Company to be the custodian of a self-directed IRA account.  PENSCO Trust Company, chartered in New Hampshire, is the country’s only single-service special asset custodian for self-directed IRAs.  Since 1989, PENSCO Trust Company has exclusively focused its services on the administration and custody of IRAs invested in non-traded assets, such as real estate and private placements. Richard Keyt is a PENSCO Trust Preferred Professional.

VI.  Custodian Referrals

Ask your proposed custodian who to contact to form an limited liability company to use self-directed IRA funds to purchase real estate or a business.  Does the custodian refer you to a licensed attorney or to an uninsured document preparer or a paralegal?  Beware of custodians who do not refer people to licensed professionals such as attorneys and CPAs.  Ask yourself why an organization would expose itself to potential liability by recommending a paralegal to form an LLC when the paralegal is not licensed to practice law and is not covered by malpractice insurance?  I'd be very wary of a "professional" organization that refers people who need legal services to a paralegal or document preparer.  

VII. Summary

This is your money that you are saving and growing for your retirement. Choose the custodian of your retirement assets wisely. Your decision should be based on comparing the relative safety, integrity, knowledge, service and costs of several alternatives. Choosing the low cost producer to hold and administrate your retirement assets may present more risk than you feel comfortable with.

Phoenix Attorney Richard Keyt

Our EP Questionnaire

To hire Arizona estate planning attorney Richard Keyt to assist you in designing your estate plan and to prepare your estate plan documents, complete the appropriate online Estate Planning Questionnaire for a single person or a married couple and email, fax or mail it to Rick. 

How to Make an Appointment

To make an appointment for an initial consultation to answer your questions and design your custom estate plan, call Rick at 602-906-4953, ext. 3 or Rick's secretary Milena at 602-906-4953, ext. 2.

When we prepare a trust, we purchase a five year membership for our clients in a fabulous service called DocuBank, which provides emergency access to your healthcare directives, 24/7/365, online and via phone or fax.  We include DocuBank as part of our estate planning services to ensure that your living will, health care power of attorney and other medical directives will be available at the hospital when you need them, where you need them.

This page was last modified on September 17, 2009.