The Benefits of Hiring a Real Estate IRA Custodian

The Benefits of Hiring a Real Estate IRA Custodian

There are several types of individual retirement accounts you can create, which include everything from self-directed IRAs to Roth IRA accounts. Regardless of the type of IRA you open, all of them require a custodian. IRA custodians are financial institutions that hold the investments you place in your account to ensure that they meet government and IRS regulations.

If you’re opening a self-directed real estate IRA, it should be easy for you to find a custodian that will take care of the account for you. The main difference between a standard IRA and a self-directed IRA is that you’ll be tasked with selecting, purchasing, and selling the real estate assets that are placed in your account. This guide takes a closer look at the advantages that come with hiring a real estate IRA custodian.

Types of Custodians for Traditional IRA

When creating a traditional IRA account, there are several different types of institutions that can act as custodians once the account is made with them. These custodians include:

  • Banks – Banks provide you with the ability to place money market or CD funds into an IRA. However, they don’t offer many other investment opportunities aside from these vehicles.
  • Mutual fund companies – These companies give you the opportunity to invest in ETFs or mutual funds.
  • Brokerage firms – A brokerage firm may be the ideal custodian with a more traditional IRA if you want to invest in mutual funds, ETFs, stocks, or bonds.
  • Robo-advisors – These entities are modern online platforms that deliver automated portfolio management suggestions and advice. Since these platforms don’t require human interaction, fees are low.

Types of Custodians for Self-directed Real Estate IRA

While the standard investment types to include in an IRA are stocks, bonds, ETFs and mutual funds, an alternative investment you can research is real estate. With the right IRA account you can purchase apartment buildings, single-family homes, and commercial properties that will be placed in the account.

However, a self-directed IRA is needed to invest in real estate with your account. Any property you purchase with the account needs to be strictly used for investment reasons. In most cases, buying real estate with an IRA requires cash payment. The IRA will be tasked with paying all ownership expenses while the piece of real estate remains in the account. Because of the complex tax aspects of a real estate IRA, you should focus on hiring a custodian to hold your assets.

There are three different types of providers that can be hired for a self-directed IRA, which include administrators, facilitators and custodians. A custodian must be approved by the IRS to hold your assets. Alternatively, facilitators and administrators will act as intermediaries between a partner custodian and yourself. If you want to open a real estate IRA, it’s recommended that you hire a traditional custodian.

All of the financial institutions mentioned above are able to serve as custodians for real estate IRAs. Note that you need to be careful about the custodian you select if you want to make non-traditional investments. Violating IRS regulations can easily occur when it comes to a real estate IRA, which is why you should select a custodian that understands the tax laws surrounding self-directed real estate IRAs.

Benefits of Hiring a Real Estate IRA Custodian

The custodian you hire can help you create the account and will be involved with reporting balances, deposits, and withdrawals to the IRS. If you hire an experienced custodian, they will be able to help you make sound real estate investment decisions for your IRA.

One advantage of hiring the right custodian for your real estate IRA is that the fees should be low. Try to find a custodian that only charges account maintenance fees on an annual basis. Since the IRA doesn’t invest in stocks or mutual funds, there shouldn’t be any load fees for mutual funds or commissions that are charged for every trade that’s made.

The right custodian can provide you with excellent customer service, answering any questions you have about your account. The best custodians offer a user-friendly website for investment monitoring.

Hiring a real estate IRA custodian makes it less likely that your real estate investments will run afoul of the IRS. The right hire can provide you with extensive investment opportunities, excellent customer service, a user-friendly website, and low fees.