Self-directed Iras & 401ks...beware of the Dreaded Transactional Fee!

There are many articles written about the permissibility of self-directing one's retirement assets....this author included. It is still amazing that while the process of self-directing is in its relative infancy, the vast majority of individuals in this country don't understand that you can self-direct your own retirement assets. Of course, IRS and Department of Labor (specifically, pertaining to self-directed 401k accounts) rules must be adhered to and met, but the opportunity for many to self-direct is not only inviting but, in many people's minds, necessary to some degree.

As the old saying (or maybe it is my saying) goes: "Who is a better steward of your money, the person who needs it (you) or the person who is paid to invest it?"

One interesting point always comes up with individuals looking to self-direct but not wanting to place all of their retirement assets in non-traditional assets investments. They typically ask the question about how they can keep a portion of their assets into traditional offerings (e.g., stocks, bonds, mutual funds).

A word to the wise when going down this path....ask this question to either the custodian, administrator or facilitator who is assisting you in setting up either your self-directed IRA or 401k. With many custodians, administrators or facilitators, they will assist the client in setting this up, but the client has to pay a transactional fee, account maintenance fee, or both just to perform this function. This does not have to occur and, if it does, it should be a very modest fee.

Individuals enter into agreements to establish self-directed IRA or 401k accounts because: 1) they feel they can do a better job of investing the money than who they are currently paying (e.g., broker), and 2) they feel they can minimize their expenses. Why should they move their retirement assets and pay some other entity a transactional fee or account maintenance fee just to buy the same stocks, bonds and mutual funds they may have owned before going self-directed?

If truly self-directed, an individual should be able to take control of the transactions and the investments they may make without paying additional monies for transactions. Individuals should be and are able to only pay for the transaction of establishing the self-directed accounts within IRS regulations on a one-time basis, not incurring a charge every time they conduct transactions within their self-directed account. This is typically referred to as a "true checkbook control" of their account. Even though some of these "true checkbook control" custodians, administrators or facilitators levy additional fees just for the execution of transactions by the client.

Self-direction? A great idea for many. However, one should conduct their due diligence on who they may utilize to assist them in setting up this account, but also feel comfortable that they are not "pumping the meter" every time they conduct business.

John R. Park is President of PGI SelfDirected and co-founding Partner of Fulcrum Investment Network