What is a self-directed IRA custodian?

A self-directed IRA (set up as a Roth, Traditional, or SEP), is managed by a custodian. The custodian is a financial institution that is responsible for holding and administering the assets within a self-directed individual retirement account.

A self-directed IRA allows individuals to invest in alternative investments that don’t fall neatly into the definition of traditional assets like stocks, bonds, and cash. Alternatives are largely insulated from broader market trends and tend to involve significantly more complex transaction requirements.

Both self-directed Roth IRAs and self-directed Traditional IRAs allow investments in areas like real assets including real estate, fine wine, art, collectibles, venture capital, private equity, precious metals, and more. Self-directed IRAs can adhere to either Traditional or Roth IRA income tax rules.

With self-directed IRAs, the emphasis is on the asset class and the SDIRA custodian. The IRS dictates that all IRAs must be held by a custodial entity (bank, provident trust, etc.). These entities must not provide any investment advice to an account owner by acting as an investment advisor.

Generally, brokerage firms shy away from self-directed IRA accounts due to their numerous prohibited transactions limiting the investability of the capital, and the immense administrative burden of facilitating transactions on alternatives.

While alternative investments have their fair share of complexities, an experienced SDIRA custodian can help you navigate them. A custodian like Alto offers investors diverse investment options beyond stocks, bonds, and mutual funds, as well as a transparent fee structure.