Self-Directed IRA/401K Fees -- What Gives?!

It is fair to say that any of us, regardless of what we do for a living, need and should be compensated for our livelihood. This goes for any facilitator, administrator or custodian of self-directed IRA and 401K accounts. In many cases, not only is a client paying for the services rendered, but also the expertise of the individual or firm providing the service.

However, with the plethora of individuals/firms providing services in the arena of self-directed IRA and 401K accounts, there are some unique differences in the amount of fees charged for these services. Please note that this article is not intended to call into question what fee structures are being utilized, but to educate individuals on some salient points related to these fee structures.

First, as a reminder, there are practical differences in services rendered by facilitators, administrators and custodians which may significantly justify a particular fee structure. One must determine if the level of services warrants certain fees. For a refresher on the differences between facilitators, administrators and custodians, please review a previous Fulcrum Investment Network blog.

For the buying public, I recently investigated the fees of two administrator companies to determine the costs associated with establishing a self-directed IRA or 401K. In fairness, the information provided herein was confirmed with both companies. Note: an interesting point. Both of the companies, while not personally establishing a SD 401K, will "farm it out" to a third party and prefer not to do 401K plans accordingly.

To draw a conclusion, one must understand the hypothetical parameters utilized in comparing costs and fees, etc. For this article, the following hypotheticals were used:

$500,000 -- amount to be transferred from a "traditional" custodian to the new company (administrator). Investments Owned by the IRA/401K -- 4 (two real estate holdings and 2 mutual funds). Assets Held -- All 4 assets were held for the year and then sold at the end of the plan year. $50,000 -- amount in liquid, money market account within the IRA/401K.

Company A

Account Set Up Fee (Initial Fee) $ 50.00

Investment Transaction Fees $ 800.00 ($100.00 per asset transaction, both purchase and sale)

Annual Account Maintenance Fee $ 1,000.00

Minimum Total First Year Fees $ 1,850.00

Company B

Account Set Up Fee (Initial Fee) $ 50.00

Investment Transaction Fees< $ 800.00 ($100.00 per asset transaction, both purchase and sale).

Annual Account Maintenance Fee $1,850.00

Minimum Total First Year Fees $2,700.00

Wait (Wait #1), that's not it!

This example is for an IRA. The costs for a self-directed 401K increase by a minimum of $300.00 for an annual review of the 401K plan document to ensure compliance.

Wait (Wait #2), want more?? The aforementioned fees do not include any of the following (that a client may or may not utilize):

Domestic or International Wire Transfers; Cashier's or other Official Bank Check; Overnight mail; Returned items of any kind; Reprocessing of incomplete documents; Loan or Mortgage Servicing Set-up and Deman for Payoff; Re-registration of assets; In kind distributions; Partial or Full Termination fees; and, Late fees.

WAIT (Wait #3). Remember in the aforementioned example, $50,000 was left in a liquid, money market account? In the case of these two companies, any funds that are retained in the account and NOT invested into a traditional or non-traditional asset, receive interest. Well, we do know that interest rates vary; however, a client with either of these companies receive 1/2 of 1% interest on that money while not invested. Is this a revenue source for the administrator/custodian? Absolutely. Because while we do know that banks are not paying much in interest on such accounts, my last observation was that they were paying more than 1/2 of 1%. Therefore, the additional interest is retained by the administrator/custodian.

Please keep in mind that the aforementioned example with the two companies is an illustrative example of what is "out there" in the market place. It is not to suggest that these two companies' fees are either the highest or the lowest. It is also not to suggest that their fees are not justified. A consumer must do their due diligence to determine not only their comfort level with any facilitator, administrator or custodian but also know exactly what they are being charged in fees so that they can do diligent shopping of services.

If one are interested in self-directing, do it! Just be thorough in your due diligence. The amount of fees you pay does make a difference not only to you and your pocket book but also to your ROI (return on investment). No one wants to see their ROI gobbled up with fees.

John R. Park is President of PGI SelfDirected (www.pgiselfdirected.com) and co-founding Partner of Fulcrum Investment Network (www.fulcruminvestmentnetwork.com).

IRAs, 401(k)s & Other Retirement Plans: Taking Your Money Out

Self-Directed IRA & 401K Accounts -- This is Self-Directed??

Many of us remember our first "dive" into the municipal swimming pool or lake. Once we overcame the trepidation of diving head first into the expansive body of water, did we dive in completely or just halfway?

The same is true with self-directing your retirement assets. While your plan must be established and continually adhere with all IRS and Department of Labor regulations, the code in no way prevents a fiduciary (e.g., you, yes it can be you) from controlling all aspects of the plan. This is true provided the fiduciary is not "self-dealing", which is expressly prohibited. A fiduciary can only act in the best interests of the retirement plan, and may not personally benefit.

So, if that is the case, why do most individuals believe that other individuals or entities must "do" everything for you after the self-directed plan is established? Well, the answer is lack of education on the part of the self-directed participant.

Once a self-directed plan is legally structured, an individual can have full control of their retirement assets and be the fiduciary of this plan. Practically speaking, what this means is:

1) Ease of Investing with no Time Restrictions -- What if the self-directed participant wanted to make a timely investment only to find out that the custodian/administrator was going to need 10 days to process the request? One might argue that if that self-directed participant had control of their own money, the time restriction, in that example, is cut approximately 10 days!

2) Execution of Transactions -- Whether it is paying maintenance fees, repair fees, taxes, mortgates, etc., ficudiaries CAN execute the same transactions, and at no cost to the plan (remember this is the participant's OWN retirement assets). SIMPLE ENGLISH -- does a self-directed participant want to pay fees every time they want a transaction executed for something they can do themselves? This, by the way, can cost a participant hundreds of dollars a year in transaction fees.

3) Savings With Account Maintenance Fees -- Other than what a participant's bank may charge as a monthly checking account service fee (e.g., $0 - $15), is there any reason to pay a custodian/administrator fees for account maintenance?

4) Having NO Account Balance Fees -- Many custodians/administrators charge the participant MORE in account balance fees as the participant grows their retirement assets. Does this make any sense to anyone? Kind of like your broker.....the more tha balance grows in your account, the more they make!

5) "It's Your Money" -- Tying into Items 1-4 (above), bottomline is that most individuals (wait, maybe 100% of the people), if they can, would rather have their hard-earned retirement assets in an account that they actually can control and be personally responsible for. Why pay someone else to deposit your retirement assets when you can control them yourself?

Self-directed participants are concerned with the following:

1) Establishing a self-directed plan that meets all IRS/Department of Labor regulations;

2) Security of their assets:

3) Growth of their assets: and,

4) The ability to control their assets (if they didn't want control, why self-direct in the first place?).

As a result, once the self-directed participant receives assistance with Item #1 they, as fiduciaries of their own retirement plan, can take control of Items 2 - 4.

Get educated....remember, with self-directing your own retirement assets, what you don't know can cost you...a lot.


John Park is President of PGI SelfDirected (www.pgiselfdirected.com) and co-founding Partner of Fulcrum Investment Network (www.fulcruminvestmentnetwork.com).

Top Finance Book Titles

New 403b Plan Rules

Review and get assistance on the new 403 b plan regulations. These final rules include developing a plan document, review operations in the 403 b plan, form 5500 requirement and reviewing frozen and current investment relationships.
Some of these new regulations will depend on the type of 403 b involved or plan status. These are generally:

Non Actively Sponsored Plans
Actively Sponsored 403b
Actively Sponsored Hybrid Account

We are a training company that helps HR managers of 403b and 401k plan managers with servicing and compliance help. With the new 403 rules and regulations coming out, we can help your company with what you need to know.

Free assistance to non profit and small business. Ask our experts. We train the broker dealers and 403b 401k servicing companies.

New 403b regulations

3rd party adminstrator - Service Plan Administration

Learn about the benefits and flaws in 401K retirement accounts.

American Investment Training works and trains for the largest financial services firms in the world. We can answer your small business 401k questions and provide you with several retirement account firms. These firms are experts in the small to medium size retirment planning market. Questions on how to set up the plan, contribution limits, withdrawal rules, 401k transfers, fees and deductions can be answered.

We represent fortune 500 401k plan administrators to provide 3rd party servicing to your company 401k.

If you are a company in need of servicing questions for your employees or have questions on fees, compliance or other areas of concern, please use our Company Retirement Plan Help link.

If you are an individual with a retirement account or 401 k and need assistance with in service distribution or other transfer rollover questions, American Investment Training can help. You can submit your question to our Investment Retirement Plan Help form for individual investors or insurance issues.

One of the most important issues for companies with 401k plans is the servicing and fees they get from their administration provider or servicing company dealer. We are rules and regulation training experts and work with some of the largest 401 k plan servicing companies and broker dealers in the country. Whether it is a question on admin fees, service issues, new regulations or other issues - our experts are her to answer any question you may have.

Finance Books

The Basics of Roth IRA Investing

Questions about the best Roth IRA investments are common. Under the Roth IRA limits or guidelines, there are plenty of investment options. In order to diversify as much as possible, you need to open a self-directed account. Account custodians are not allowed to give investing advice, so they can not answer questions about the best Roth IRA investments.

The rules for a Roth IRA limits only the amount of qualifying contributions that you can make into an account during a tax year. There are no limits on the number of investments that you can make during a year. But, sometimes, you may need some advice.

You will find that opinions vary about the best Roth IRA investments. Usually it depends on who the advice is coming from. Bankers suggest certificates of deposit. Stock brokers suggest mutual funds. Financial planners suggest diversification.

If you have the funds available, invest in some of each. If you have a self-directed account, don't forget real estate. There are some Roth IRA limits or rules when it comes to real estate investments, having primarily to do with transactions that are considered self-dealing or indirectly beneficial to the account owner (you). But, the trustees are also prohibited from benefitting from a transaction. Do you remember the movie "Ghost"? The villain was about to be caught under the self-dealing rules and he would have ended up owing a lot of people money and going to jail. That's why custodians avoid giving advice about the best Roth IRA investments. They never want any of their actions to be suspect.

Custodians can offer education within the Roth IRA limits. And, education is always important. Whether you are an experienced investor or just started out, the more information and assistance that you have at your disposal, the better off you will be.

Many of us consider houses and rental units some of the best Roth IRA investments, particularly those that can be directly purchased with funds from the account. Financing is an option, but profits are subject to "unrelated business income" taxes, when financing is used.

Under the Roth IRA limits, you may purchase commercial or residential property, as long as you and other disqualified persons do not reside or have office space in the properties held by your account. Because, of the tax-free status of profits made within the account, it is possible to increase your profits on real estate deals by about 30%, depending on your tax bracket and other issues.

Currently, the Roth IRA limits for contributions are $5000 per year and that amount will go up another $500 every year due to inflation. So, by making the maximum contribution, you can very quickly amass sufficient funds to delve into the real estate market.

Your primary goal for your retirement account should be to create a passive flow of income into the account, with minimal costs involved. By definition, those are the best Roth IRA investments to make. If you find the right deals, you may be able to build your account more quickly than you thought possible.

Ronald D. Frommert is an advocate of using a self directed IRA for real estate investments to maximize returns. To learn more about the advantages of IRA investing in real estate visit http://www.ilocusa.com

Single Premium Annuities, Flexible Premium, Level Annuity Plan

Single premium annuity contracts are annuities in which only one premium is envisioned. Generally no further premiums are either expected or permitted. Often, single premium annuity contracts are funded by money received from an employer’s qualified plan—a pension or profit sharing plan—or as a result of a severance package received from a terminating employer. Sometimes, of course, single premium annuity premiums come from an inheritance or an individual’s certificate of deposit. Single premium annuities may be either single premium immediate annuities (SPIA) or single premium deferred annuities (SPDA).

Level Premium Annuities

Annuities are sometimes funded through fixed level premiums. Under this approach, the contract owner pays a regular premium at fixed intervals—monthly, quarterly, semi-annually or annually— much as he or she would pay a whole life insurance premium. Normally, the contract owner does not have the option of paying more or less than the billed premium. Fixed level premiums characterize traditional retirement annuity contracts, where the objective is to accumulate a certain future amount of funds which, upon retirement, will then be annuitized to generate a specified level of income. While fixed level premiums provide a certain compulsion to accumulate funds through a forced savings approach, this premium-paying method has largely given way to flexible premiums.

Flexible Premium Annuities

The most popular method of funding an annuity is through flexible premiums. In a flexible premium annuity, the insurer sends regular premium notices on the chosen frequency to the contract owner who may remit the billed premium, more or less than the billed premium, or no premium at all. (There are, typically, certain minimum and maximum premiums permitted by the insurer.) Under the flexible premium approach, the contract owner may pay a premium when his or her cash flow permits and pay no premium when it doesn’t. As noted, this popular premium-paying method has supplanted, for the most part, the less-flexible fixed level premium approach.

Whether the premiums are paid on a fixed, level basis or on a flexible basis, annuities on which ongoing premiums are paid may only be deferred annuities; single premium annuities, however, may be either deferred annuities or immediate annuities.

Annuities State Tax Treatment - Taxation Annuity

The estate tax treatment given annuities depends on whether death occurred before or after the annuity starting date. If death occurred before the annuity starting date, i.e. during the accumulation period, the entire value of the annuity contract is includible in the owner-decedent’s federal gross estate.

If death occurred after the annuity starting date, the commuted value of any remaining payments under the contract is included in the owner-decedent’s federal gross estate. Therefore, if the decedent had selected a straight life annuity no value would be included in his or her federal gross estate because no benefits are payable to a beneficiary under a straight life annuity. However, if the decedent elected a period certain and died before the end of the selected period, the commuted value of those remaining payments due the beneficiary is included in the decedent’s estate.

Annuities Settlement

New 403b distribution rules - 403b regulations

One of the new and final regulations to 403 b plans is ones that are funded through annuity contracts. The plan must provide a predetermined formula for distributing the funds in the plan after a fixed number of years or after an occurnace of an event such as a layoff, illness, disability, retirement or death. This is a new 403b distribution rule.

The final regulations also generally follow the 401 k rules for determining whether there is severance from employment, which would permit distributions or omit the ability to make elective deferrals.

For purposes of distributions from a 403b plan, they now provide that a seeverance occurs whan an employee ceases to be employed by an eligible employer that maintains the 403b

An employee transferring from a tax exempt parent to a for profit.

New 403b Rules

Servicing Company - Service Plan 401k

Whether you are a small business, medium sized company or larger corporation, having the right 401k servicing company is a must. An administrator broker dealer company should be well versed in the current laws and regulations dealing with 401k rules and the servicing plan company should meet frequently with the HR Manager or Owner of the corporation to discuss matters of interest relating to servicing, including fees.

The employees of the firm will expect top notch and attentive service and education related to the 401 k plan. These servicing areas should include investment choices, funds, fees, contribution limits and maximums and regulations that could effect the plan and the employees participating.

American Investment Training is the premier company offering education to the broker dealer community and they provide a free service to companies seeking advice or have a 401k adminstration, servicing or regulation question relating to 401k plans or other corporate retirement planning questions. Service companies work with AIT and a list of the top 401k broker dealers can be provided to you.

If you currently have a 401k or other retirement plan and are not being properly informed of current tax law changes, service plan rules and regulations, being charged fees that are not disclosed or unlcear, you can submit a request or ask a question of the investment specialists at American Investment Training.

The form to submit is on their Company Retirement Plan Questionhelp page.

Stay informed and educated when it comes to company retirement plan administration and the current regualtions and rules for 401 k plans.

Vesting - Retirement Account, 401 k Vesting, 100% Vested

For employees and employers in a company contribution plan, the vesting period is an important period of time. A retirement account, like a 401k that is provided by a company (employer) is largely done as an incentive or loyalty benefit.

Being vested or 100% vested is on the part of the employee. If the employee remains with the company for a set number of years - as stated when they signed onto the plan, then the contributions made by the employer are now 100% the employee's. This vesting period can be set up a number of ways but is usually 5 years.

When the employee makes a 401k contribution, that money in the account is always 100% for the employee and would be available to the person for any rollover or job switch - as long as it is permissable for tax reasons. The ammounts matched by the employer in the retirement account may only be partially under the worker's benefit to rollover or move. This depends on the vesting schedule and how long the person has remained with the company.

This vested part of the account is no all or none. An employee can be 40% vested, 70% vested etc. They do not have to be 100% to gain some of the company contributions made into the retirement account.

The period is not a long time for most employees and it is only fair for a company to have a set period of stay before the money the business has contributed to you is 100% yours. Filling this period of time is a normal part of 401k retirement account planning.

401k Administrator Employer Help - Current rules and regulation assistance for plan administrators, HR managers or business owners.

Individuals looking for Life Insurance or Investment Help and Questions

Hardship early rule - 401k hardship withdrawal

Sometimes people need to borrow or withdraw from their 401 k for hardship reasons. Sometimes these withdrawals are defined hardship reasons - in the eyes of the IRS such as serious illness or death of a loved one.

Many times the hardship reasons to take out early of a 401k are expenses, debts and other financial dificulties. Loans should always be considered first, as the 401k remains active and funded. You are simply borrowing money for your hardship.

The withdrawal rules for non hardship reasons are 10% early withdrawal penalty and the amount taken out is taxed at your current tax bracket. This money has not been taxed yet. 401 k plans are tax qualified plans, so taxes are always due on the money taken out, but the 10% penalty (if prior to age 59 1/2) applies.

You should also consider other insurance policies that may have lost interest or no interest cost loans. Universal Variable Life Policies could offer low cost hardship loans instead of taking out money early from a company retirement plan, be it 401k, SEP IRA, group annuity or other.

Certain hardships are allowed with rules and the reasons for early cashing out has expanded to include educational expenses and other issues. It depends on the individual, state and reasons.

American Investment Training is a highly reputable training company and has all of the current rules and regulations available.

Retirement Investment Questions

Small Business 401k - Business Account

There are many small businesses who would like to open a 401k or similar retirement plan for themsleves and their employees. Just because a business is not large with hundreds of employees does not mean they cannot offer an employer-employee retirement account or small business 401k.

Many company owners would like to provide benefits of this nature to compete for good employees, reward loyalty and allow ofr tax deferred contributions for themselves.

A small business has unique challenges and having a 401k plan that fits what they need is very important. There are several types of plans and structures and respected companies that have the experience to service the account on your behalf.

American Investment Training works and trains for the largest financial services firms in the world. We can answer your small business 401k questions and provide you with several retirement account firms. These firms are experts in the small to medium size retirment planning market.

Questions on how to set up the plan, contribution limits, withdrawal rules, 401k transfers, fees and deductions can be answered.

401k Plan Questions

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