How to Choose a Custodian for Your Self-Directed Retirement Account
John Larson and the Real Estate Cowboys talk passive income real estate investing.
Hear new episodes every Sunday morning at 8 a.m. The Cowboys talk about the ins and outs of choosing a custodian for your self-directed retirement account.
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Keith Weinhold: Hey, this is Keith Weinhold from the Get Rich Education podcast. You are listening to my friend John Larson and the Real Estate Cowboys. Don’t quit your daydream.
Robert Helms: Hey everybody, it’s Robert Helms, host of the Real Estate Guys radio show, and you are listening to the Real Estate Cowboys.
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passive income investment opportunities in the red hot Texas market. John Larson and the Real Estate Cowboys will show you how to leverage their team to build wealth in real estate through passive investment
opportunities. And now here’s John.
John Larson: And welcome to another edition of the Real Estate Cowboys radio show. This is your host, John Larson. This week we are going to keep the ball rolling. We’re going to keep talking about self-directed IRAs. I’m sure if you listen to the show, you know that I talk about those a lot. I talk a lot about taking money out of Wall Street and bringing it Main Street and the best way to do that is to self-direct your retirement funds. And like I said before, I’m not advising you to take out all your money from Wall Street, but I believe it’s smart to diversify and get some of those funds working with you on the self-directed path because there’s just really so many things you can do once you self-direct. And we talked a lot about those last week. You can invest in precious metals, real estate, you can loan money, you can loan money on real estate, you can loan money on equipment, which we’ve done before with our CBD business.
And so there’s a lot of different things that you can do once you self-direct that money in. And the main thing is, you take control of it, right? You don’t have a stockbroker that’s moving money around and you know, some financial advisor, you know from Edward Jones moving money around this and that you don’t really know exactly what you’re doing. You’re, you’re kind of taking their advice. But you know, they do a good job at just kind of giving you the information that you want to hear. But not all the information. Okay. When you self direct, you have control of those funds, you have control on where those funds are invested in. So I really like to talk about self-directed retirement accounts a lot because I believe, you know, the majority of the everyday person that’s out there doesn’t even really know that you can self-direct your retirement funds, invest in other things, or invest in alternative investments and not just the traditional investments that we’re all, you know, raised to, to know; stocks, bonds, mutual funds, annuities, so on and so forth. Right. So I was actually just on the Real Estate Guys show again. I recorded yesterday with Russ and Robert and you know we had, we had a long discussion about retirement funds as well and self-directing those funds and doing a lot of other cool things with your, with your retirement money where you can see much higher returns, double-digit returns. In some cases, if you do it smart, you know, and buy a property at the right time, you could see even triple-digit returns on your money, okay, with real estate. You know, last week I kind of hit on a step by step guide and how to self-direct. Now I want to talk about how to choose a custodian for your self-directed retirement account. Okay. And so when you’re ready to switch to a self-directed retirement account, the next thing you want to do is to find a custodian for the account. And now keep in mind, a custodian is not mandatory by the IRS, but most investors find that having a custodian does simplify things. And I’ll agree with that because the custodian handles a lot of the paperwork and gives you some guidance on how to get the process set up, right? Now let’s talk first and foremost, how to find qualified custodians and then how to choose among them. So there really isn’t as many qualified custodians for self- directed retirement accounts as there are stockbrokers. Okay. But if you know where to look, you’ll surely be able to find one that suits your needs. The first thing that people like to do is, what do they do? They conduct an
online search. They go on their phone, their smartphone, they look Google, you know, self-directed, uh retirement custodian, whatever it may be. But you need to know what search terms to use. Custodians for self-directed retirement accounts are also sometimes referred to as trustees. Okay? They’re less often referred to as managers or administrators. So when you’re conducting your online search, you may need to try a variety of these terms along with self-directed retirement account in quotes to get sufficient results. Okay. The second thing to keep in mind is the first results that you’re going to see are going to be paid ads for custodians. Okay? So you’re going to probably see a lot of the large custodian companies, right? The large trust companies are going to pop up first. And so you might want to scroll down past the paid ads so you don’t simply get funneled into a limited choice of custodians based on computer algorithms and who’s paying the most money to show up first. Right? Another good way to find a, a solid self-directed retirement account custodian would be to get a recommendation from a friend or a family
member, somebody that’s done it before, right? So if you know anyone in your professional or personal life who’s willing to share this information, you could ask them for a recommendation. Hey, do you have a custodian? I want to self-direct. Who do you recommend? You know, asking some questions about them. Are you happy with them? Are they responsive? You know, just a recommendation is honestly one of the main things I do. If I need an appraiser for something or if I need a contractor for a job, you know, I reach out to my like friends and family first
and, and some business associates and ask who they like, you know, that’s kind of where I start. Then I kinda hit Google. But I, I like the a referral or recommendation route before, before anything else. Right? So, you know, the most trusted testimonials, uh, for a custodians level of service may come from people you already know and trust, right?
And I think that comes with anything. So you may also want to ask your banker, accountant or tax preparer if they happen to know of a custodian that they can recommend. A lot of times those people in those professions kind of all hang in the same circle, right? The other source for custodian recommendations is possibly the investment sponsor. So for example, us at American Real Estate Investments, if we have an opportunity on the table, if it’s a private lending opportunity, whatever it may be. Um, you may ask us, Hey, is there anybody that you’d recommend to set up my self-directed retirement account and manage it right? And we do. We have a few companies that we work very closely with and built some good relationships with and kind of streamline the process. So we definitely have recommendations as well. But if you’ve already identified a potential investment such as a private lending opportunity like I said, sponsors, people that you’re working with, they’ll probably have a handful of custodians that they’ve done business with that they’ll recommend just like
And trust me, we’ve worked with some that are great and we’ve worked with some that are not so great. So when you do, uh, you know, a lot of, um, you know, when you’re placing money from, from self-directed accounts, you find yourself working with a lot of different custodians and a lot of the same custodians, right? And so we can really tell you just from working with all of them who’s the best and who’s may be kind of lacking in some areas. So I think that we are a good source to go to for a solid recommendation.
So now once you do an online search and all that, how do you choose a custodian for your self-directed retirement account? So once you’ve kind of put a list together of possible custodians, you’ll need to narrow it down to
the one that you want to actually work with, right? Remember, ideally you want it to be a long-term relationship. So keep the following in mind when you choose. The custodian doesn’t vet investments. The custodian’s job is not to advise you on what investment you should go with. So you know, that would have to be a financial advisor. That would have to be like, hey, a friend or a family member that worked with a sponsor before that saw good results where that sponsor performed for them. You know, that would be a good person to ask, you know, hey, who have you used before for a private lending deal or to buy some property with your self-directed account. You know, you could take to blogs, Bigger Pockets, things like that. And I’m sure that you could get some decent responses from, from some members on there. Just keep that in mind, that custodians, they’re not there to advise you on a particular investment, okay?
Some custodial firms have been around for many years, right? Many more years than others, right? So as such, they may have had previous experience with certain investment sponsors or investment types. You should certainly listen to any advice offered from your custodian, but you should not rely on the custodian for your final decision, okay. The more self-reliant and knowledgeable you become, the better and more
successful investor you will be, right?
You also want to pay attention to rapport with your custodian. Your custodian will be executing your orders on a continual basis over the long-term in most cases. So it’s really essential that you have good rapport with whichever custodian you choose to work with. And you want to pay careful attention to the rapport during the conversations. When you’re interviewing a custodian, you know the, some of the things that you should be looking for are, you know, they don’t interrupt you when you’re speaking. They respond to you. They don’t just continue with, you know, what they wanted to say next. They answer your questions fully, not just yes or no. You know, asks you insightful questions, wants to find out more about you. Uh, they’re not hurried or distracted. They answer basic questions, objectives without judgment. Offer to be available for future calls and questions. You want them to be patient with you, especially if you’re just starting off and you know, from there you really just want to ask about
Cybersecurity is really paramount in today’s world and especially when it comes to your self-directed retirement account. And so with someone that has substantial retirement funds to invest, you’re automatically a target for
identity thieves, right? So you want to ask the custodian about their security measures, just ask outright if they’ve ever been hacked. And if so, you know, what’s their response?
You know, how did they handle that? And a quality custodian will use the latest encryption standards and should be willing to share with you what security protocols are in place, right? This is your retirement funds here. So you want to make sure that whoever you’re working with has got their ducks in a row, especially on the security side. Okay?
You’re also gonna want to look for an attractive fee structure. This is where things get a little dicey. You know, some custodians charge a lot more for their service than others when it’s really just mainly just pushing paperwork. Okay? So every self-direct retirement account custodian’s fee structure is going to vary, and it really does pay to shop around. The fee structure can be different among them all, really. And the right choice could save you hundreds of dollars each year, right? So you want to really, you know, don’t go for the cheapest guy, I would say.
But you know, also don’t be suckered into paying for the most expensive company either. You know, find some middle ground somewhere. Okay? But you’re not gonna be able to do that until you kind of shop around and, and kinda hear how everybody’s fee structure works and what type of service you’re going to get for the fees that you’re paying. So here’s kind of like an example. Some custodians, they’re going to charge less for account maintenance, but they have a fee for each transaction. Right? Other custodians charge a bit higher for ongoing account maintenance, but offer free transactions, fee-free, right? Other fees that custodians may charge for include document transfer fees. Just look out for all like the hidden fees or what fees that they’re going to be putting in there. I’ve seen a lot of them. Okay. Ask for the fee schedule up front before choosing a self-directed retirement account custodian. It pays to spend some time, you know, comparing and contrasting the charges for each one. Then consider how you’ll be using the account, right? If you’re just going to be using the account for like one real estate deal, maybe two real estate deals each year, you know, just kind of factor all that in. Right? Or is this going to be something where you’re trying to do up to five deals or more? Well, if they’re charging you a fee for every deal
that you do, you probably don’t want to go with the custodian that’s gonna charge for every transfer. Right? You want to go with someone that’s going to be, you know, fee-free on the transaction. Okay. So that’s definitely something to consider. So like I said, if you anticipate making just one or two investments each year or several over the years, you know, are your investments more active, are they more passive? That will help you determine what kind of fee structure is likely to save you the most money. Right? So you’ve got to kind of go back to what your goals are and what you’re looking to do. Are you going to be an active investor with this money? Are you gonna be using this money to flip houses and do things like that? Or you know, are you going to be just doing like a private lending deal, right? Where it’s maybe one per year. You know that’s the kind of stuff that you need to kind of take into consideration anytime you’re looking to self direct, right? And doing the fee structures. The last thing I would say is ensure you know that you have a freedom of choice. You want to ensure that the custodian offers freedom of choice on your investments within the allowed investments dictated by the IRS. This could be a surprise to some people, but some self-directed retirement account custodians choose to limit the type of investments that they’ll allow their clients to make. So you’re sitting there thinking, well, I self-directed my account. Why can’t I just invest in, you know, whatever I want? Well, some of these custodians that are out there in the large companies, they’re a little bit more conservative than others. Like I know for a fact there are custodians out there that don’t accept any CBD related investments. And why is that? I mean, hemp is not on the banned substance list. It is legal to grow it wherever you’d like. Now there’s companies popping up everywhere that are doing, offering extraction services, remediation services. Um, there’s a bunch of retail companies that I’m sure you’ve seen that have popped up all
over CVS, Walgreens, all these big, major retailers, Walmart, they’re all starting to carry CBD products as well.
But for whatever reason, you have some trust companies and custodians that are not willing to let you invest funds into a CBD-related investment if they’re your custodian. Okay. And if you’re an investor who wants to capture solid returns that are out there in this industry, I mean, that’s why I jumped into the industry then. You know, you’ve got to make sure that you work with a custodian that’s, that’s okay with you investing in anything CBD-related. Okay. Because I’m telling you there is a lot of money to make in this, in this industry. I don’t know how long it’s gonna last, right? For little smaller investors like us, but there is money to be made now. So if you’re looking at to maximize your retirement account and maximize the returns that your retirement account is seeing, it would be a smart idea to look at some opportunities out there with CBD. And like I said, with private lending, it doesn’t just have to be with real estate. It can be with equipment too. We did a raise for our CBD business, um, where we raised money for two extractors that take the raw plant to a crude oil and then it’s refined to the active ingredient that is going into all of these retail products. And as the retail consumer demand continues to increase, because I’m telling you CBD does work with anxiety, depression, insomnia, a joint pain, so many things that it helps me for personally and, and other people that I know, seizures, epilepsy, right. The more and more research that comes out there and the more and more people that start trying this stuff. Autism’s another one. I was just talking to a gentleman that said, uh, he works with a guy whose son is autistic. He’s been taking decent doses of CBD and it’s been helping him a lot, too. So if you want to capture the big money that’s going to be made in the next couple of years in this industry, I mean, you’re talking about a multibillion-dollar industry and a lot of the investment opportunities that are out there, like what the extraction machines; we’ll be able to charge, let’s just call it $23 a pound, input pound on a hundred thousand pounds of hemp, right? That’s $2.3 million, right? These opportunities, the reason why I like them as well is because it’s predicted cash flow, right? So the investor should be able to look at the opportunity and say, okay, I can see how I’m going to get my money back, right? And if I don’t get my money back, I have, I hold liens on this equipment in the form of a UCC-1. So you collateralize your loan with deed of trust on real estate, but for equipment raises, you can file UCC-1s within the state that that equipment is going to be held and you as the investor hold lien or the lender hold lien to that equipment and trust me, whatever sponsor you’re working with and borrower that you’re working with that asks you for the loan to get that equipment, they don’t want you to come in and shut those machines down. There’s too much money to be made with those right now. But like I said, I like these plays because they’re a little bit shorter term and like I said, it’s predictable cash flow. We know how much these machines can make. And so really it’s just when you factor in how much money these machines will make over a harvest that starts in August and ends in January, it far outweighs whatever the loan amount is. So you as the investor or the lenders should feel pretty secure that you’re going to get that money back. And like I said, if you don’t, you hold a lien on million dollar equipment, right? You want to make sure because we ran into a situation where some custodians are not allowing investors now—not to say that in the future they won’t—but for now, there’s some very conservative companies out there. They’re still a little skeptical. There are some very conservative banks out there that are very skeptical, skeptical on CBD. It’s not going to take much longer though for everybody to be on board, but it’s still very new. This Farm Bill was just passed this past December. Okay. You just want to make sure that you ask if there are any limitations like this before moving forward on your next prospect. Okay. If you’re interested in investing in some CBD opportunities out there, make sure you ask your custodian, Hey, are you okay with CBD? If they say no, then obviously you already know to move on, right? So yes, come in with, I think it’s good to come in with an idea of what you’re looking to invest in so you can just let your custodian know, here’s what I’m thinking about doing with the money. Is there any going to be any restrictions or limitations on what I want to put this money into for an investment? Okay. And also keep in mind if you’re only interested in one type of investment now, you don’t want to be limited like this in the future, right? So let’s say you work with one of these companies that aren’t okay with CBD, but you
say, well, I want to do real estate, but then all of a sudden here comes a great opportunity that comes across your desk or in your email for CBD. You go back to the custodian and they say, nope, we’re still not good with CBD. Well, now you’re just missed out on that opportunity. All right? So just make sure you retain that freedom under the guidelines set forth by the IRS. All right. The whole point of self-directing is freedom of choice. But here at AREI and the Real Estate Cowboys, we’ve done business with several self-directed retirement account custodians, like I said. So if you’d like to learn more information on how the process works or if you’d like to get some recommendations, of course, feel free to contact us. All you have to do to go is go to AREIUSA.com or RealEstateCowboysDFW.com put in your information, we’ll reach out to you, a member of my team will reach out. And if you’re just kind of starting to look into possibly doing private lending, invest in real estate, um, you’re
interested in the opportunities that are out there with CBD. We can give you good recommendations from the custodian side and you know, we can also tell you about opportunities that we currently have in both the spaces, real estate, and CBD. There’s good opportunities to make double-digit returns on your money by becoming a private lender. And then like I said, that self-directed account, those dividends go back to you dividends, monthly
payments, right? They’re going to go back to tax for your tax-deferred. So double-digit returns, tax-free or tax-deferred depending on the type of account you have set up. That’s hard to find in today’s world. You know, it’s really, really tough, especially with the real estate market the way it is where it’s just hot as a pistol. Okay. If you like what you heard on this episode, look to find out more. Go to AREIUSA.com or RealEstateCowboysDFW.com you know, we have a really cool quiz that I haven’t mentioned in a while, but you know it’s 10, I think short questions that will kind of guide you into the type of investor that you are, whether it’s a vacation rental investor, a private money lending investor, or a single-family home investor. You take that quick quiz and it’ll spit back out a recommendation basically on what type of investor, based on the answers that you get, what type of investor you
probably are, right? If you’re someone that’s really, really looking for something passive, you’re probably a private lending investor. Okay. If you’re someone that’s looking for passive, but can accept some little bumps on the road, then maybe you’re more of like a single family investor or potentially a vacation rental investor. So take that quiz, check it out. Um, also, if you’d like to learn more about passive income opportunities, I have my book, you can get it off Amazon. It’s called the Passive Income Guide: What’s Your Return on Life by me, John Larson. Uh, you can either download the E-book, which is much more affordable or you can have the paperback book sent to you. Both are very, very affordable options. Basically, almost give the book away for free, but it’s a quick read that just gives you more insight on how to get started earning passive income and real estate. So if you are interested in that, go ahead and go on Amazon and get one of those books. And also be on the lookout for me, if you listen to podcasts, you know, I’m good friends with Keith Weinhold of Get Rich Education. He’s got a great podcast if you haven’t tuned into that one yet. But I just recorded with the Real Estate Guys and the Real Estate Guys have one of the best real estate investment, just investment education podcasts out there. So I just recorded with them. I think it’s kind of come out in the next couple of weeks, so be on the lookout for that. But the Real Estate Guys, I will be on the show again. I think it’s probably my fourth or fifth time I’ve been on the show, loved going on the show. Love those guys. They got just great input and just great expertise and experience in real estate investing and just investing in general. So if you’re a podcast listener like I am and haven’t subscribed to them yet, please go subscribe to the Real Estate Guys. And that’s all we had this week. This is John Larson here signing off. I’ll see you again next week with some more great information on the Real Estate Cowboys podcast and always remember, what’s your return on life. Have a great week everyone.
Announcer: All opinions expressed by the host of the show are the opinions of American Real Estate Investments LLC and do not reflect the opinions of guests or sponsors. No personal or professional advice on this program should be considered an endorsement to follow a real estate financing or investment strategy. Before acting on any information, seek advice from your financial tax, mortgage or real estate advisor, as the information is not guaranteed and investment strategies have the potential for profit or loss.