Pros and Cons of Using Self-Directed IRA Custodian

Investing in a self-directed individual retirement account (IRA) does offer the freedom to make investment decisions, but it is also more complex than traditional investments. This is why it is often recommended that you choose a custodian while investing in a self-directed IRA.

A self-directed IRA custodian is responsible for holding and safeguarding the assets within the IRA. They execute investment transactions on the account holder’s behalf, ensuring compliance with IRS regulations. But before you hire such a retirement custodian for investments, it is important to look at the pros and cons of their services.

Advantages of Using a Self-Directed IRA Custodian

Hiring a custodian for your self-directed IRA can benefit you in several ways. Let’s check out why you should consider using a self-directed IRA custodian.

  • More Control Over Investment Decisions: Self-directed IRA offers you way more investment options than traditional IRAs. While that helps you create a diversified portfolio, you do require advanced knowledge of all the assets you are investing in.

The custodian can help you with investment decisions, allowing you to make the right trades and earn more profits, and you get enough opportunities to interact with the custodian and ask questions about your investments.

  • Potential for Higher Returns: Self-directed IRA investments are more likely to generate higher returns than traditional investments. This is because you get to invest in alternative assets (real estate, gold, private equity, etc.) that offer greater returns compared to the traditional ones.

Self-directed IRA custodians can help you navigate the complexity of various asset classes and earn more profits. In fact, you should choose your custodians based on what type of assets you are planning to invest in.

  • Better Security: While choosing a custodian for your IRA, you should ensure that there are enough layers of security to keep your personal and financial data secure. With the right custodian, you do not need to worry about data theft or other security risks. Also, most self-directed custodians have an effective client service model, giving you the opportunity to share your concerns if you expect a potential data breach.

Disadvantages of Using Self-Directed IRA Custodian

While there are plenty of advantages in choosing a self-directed IRA custodian, you also need to know its downsides.

  • Higher Fees: Choosing a self-directed IRA custodian can be a bit expensive as they generally charge higher fees compared to other traditional IRA custodians. This is because a self-directed IRA comes with more investment options, which require more paperwork and documentation.

  • Risk of Fraud: Since the investments in a self-directed IRA are not regulated by the Securities and Exchange Commission (SEC), the investors may be at a higher risk of scams and fraud. This is why it becomes absolutely necessary to choose the right self-directed IRA custodian and review the potential investment opportunities.

  • Limited Support: While you do get support from the custodians for your self-directed IRA investments, it is way less than what you get with traditional IRA custodians. You often need to rely on your own research and knowledge to make investment decisions. So, if you lack the necessary knowledge or experience, it can challenging to manage your IRA.

If you have the ability to tackle these disadvantages, you may proceed with a self-directed IRA plan.


Since custodians are essential for all IRAs, it is important to know which factors to consider before choosing the service of such a custodian. Self-directed IRA investments come with greater freedom, the potential for higher returns, and a more diversified portfolio. However, you get very limited support from the custodians who specialize in such IRA investments.

You need to research and compare different custodians and check their credentials to find the right one for your IRA investments. Also, check whether the custodian has efficient customer support or not. Lastly, make sure that the custodian you choose for your self-directed IRA investments complies with IRS regulations.

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