A real estate IRA is a type of self directed IRA that allows you to use the funds you have contributed to your IRA to purchase real estate. While these accounts work much like regular IRAs, there are certain things that you need to know before you begin investing in real estate for your future income needs.
While there are a number of benefits to investing in real estate using the money in your IRA, there are also some fees that you should be aware of. Some of the fees you should be expecting when you own a real estate IRA include:
Account Opening Fee
Many custodians will charge you a fee to open your new real estate IRA. This fee covers the completion of the paperwork as well as establish the account for maintenance purposes. In most cases, custodians will charge a flat fee for this service, which may or may not include the fees associated with rolling over the money in your other retirement accounts into your new real estate IRA.
Annual Fees
Depending on the custodian, you may also be charged an annual fee that they use to keep your account in the books, so to speak. When you own real estate, your custodian has to keep accurate records of the funds you use to purchase the real estate as well as accounting for the expenses you have to pay for to maintain your properties. They also have to account for the money your investments are bringing in as well. Some custodians will charge you an initial annual fee that is higher than subsequent annual fee while others charge a flat fee for this service. Some base their annual fees on the value of your IRA account. If you are anticipating having a large account balance in your account or having a large portfolio of properties, you might consider staying away from custodians that base annual fees on account value as this might end up taking a large chunk out of your savings.
Fees Associated with Distributing Funds
Your real estate IRA custodian is responsible for distributing the funds from your IRA as you specify. This means that they have to write and mail checks to various entities dealing with purchases as well as to pay professionals for their services. Each check that is written and submitted for payment will cost you for the preparation cost. Of course, the cost of this service will vary from custodian to custodian, but will usually hover in the neighborhood of $30 per check prepared and sent.
As with any retirement account, fees may vary. Some real estate IRA custodians will charge fees not listed here while others won’t charge you many fees at all. Always make sure that the fees your custodian charges are within the norm. You can call other companies to see if the fees you are paying are in line with industry standards. This will ensure that you aren’t losing a larger portion of your savings to maintenance fees.