Save Money with a Fee Schedule Change

Featured Image

If your individual retirement plan with New Direction IRA holds non-metals assets, you likely pay annual fees on a per-asset or per-value basis. It’s also probable that you weighed these fee options prior to your initial self-directed investment and chose the more financially pragmatic model. However, in the time since that transaction, your alternative IRA investments may have grown such that your original fee structure no longer presents a cost-cutting advantage.

To help prevent overspending on account management fees, New Direction IRA allows our clients to switch between the per-asset and per-value fee models on the anniversary of their first transactions. This can occur once per year and may be worth considering as fair market valuation season approaches. Let’s review a few example scenarios that may help you identify an opportunity to reduce your annual expenses:

  • John acquired a $100,000 piece of real estate on behalf of his self-directed IRA in November 2013. He signed up with the per-value fee schedule, so his annual administration fee was $262.50 per year (for an account value between $90,000 and $124,999.99). By 2016, John’s IRA had accumulated $50,000 in rent payments and the property had appreciated to a fair market value of $130,000, bringing his total IRA value to $180,000. The account performed nicely, but John’s annual fee also rose from $262.50 to $325.00 per year (for an account value between $125,000 and $249,999.99). Once November—the anniversary month of his first investment—came around, John was able to adopt the $295.00-per-asset fee schedule and save himself some money.
  • John later decided to re-allocate his IRA’s rental profits and diversify his portfolio with a new asset. A friend of his needed capital for a new business venture, so John offered a private loan of his tax-advantaged retirement dollars. If we fast forward to November 2017, the IRA-owned property has appreciated to $150,000, an additional $15,000 in rental income has been yielded, and John’s friend has re-paid $10,000 of the note. As such, John’s IRA is now worth $175,000. The loan counts as a second asset in John’s account, which, having switched to the per-asset fee schedule, would bring John’s annual fee to $590.00 (two assets at $295.00 a piece). It would therefore behoove John to make a change back to the per-value schedule, as the $325.00 fee he swapped out before is now the cheaper option.
  • Sarah’s IRA owns three properties valued at $250,000 each. Her per-value fee would be $925.00 (for an account value of $750,000 or more) while her per-asset fee would be $885.00 (three assets at $295.00 a piece). This being the case, Sarah may consider switching to per-asset if she isn’t already on that fee schedule.
  • If Sarah sells one property for $250,000, her account value would still be $750,000 but it would only hold two assets. This would bring her per-asset fee down to $590.00, which would provide substantial savings against the $925.00 per-value fee.

Please understand that we may not recommend or endorse any particular course of action in your self-directed investing strategy. We are, on the other hand, happy to review your options to help determine whether or not a fee schedule change will suit your needs. Please don’t hesitate to contact our office to speak with our client relations specialists.

Add a comment