What do custodians charge to hold one private note, all in?

Question

I'm comparing published fee schedules and they aren't comparable at all. One is a flat 300 a year per asset with a 50 setup. One is 0.25 percent of account value with a 1,500 cap. One is 250 to open, 95 per transaction, plus 125 a year, plus something called an asset holding fee.

If the IRA is around 150k and holds exactly one private note that pays monthly, which of those actually ends up cheapest? And is the monthly payment coming in counted as a transaction? That's the line I can't find a straight answer on. I'd like to know the real annual number before I move anything.

Rena Guide · Accepted Answer

At 150k with one note, the flat schedules almost always win. 0.25 percent of 150k is 375 a year and it grows as the balance grows. A flat per-asset schedule at 300 stays 300 whether the account is 150k or 400k.

The part you're right to chase is the transaction definition, because that's where the flat schedules make their money back. Every provider defines it differently. Wiring the loan proceeds out is usually a transaction (25 to 50). Some count each incoming payment as a posting and charge for it, which at monthly payments is twelve charges a year and can add 200 or more. Others treat incoming payments as free. Ask for that in writing before you fund, and ask specifically about the payoff at maturity, which is often a separate fee.

Two costs people miss. Annual valuation: the custodian has to report the asset's value each year, and for a performing note the unpaid principal balance is usually accepted, but some providers charge a review fee. And termination: closing the account or moving to another custodian commonly runs 100 to 250 per asset.

One definition worth having straight. A custodian is a regulated entity that can legally hold retirement assets. An administrator is a service company that does paperwork and uses a custodian behind the scenes. Both are common and both can be fine, but the administrator adds a layer, and you want to know who actually holds the account if the administrator goes away.

omar_haddad · Answer

Flat fee, every time. Asset-based pricing punishes you for the account growing, which is the entire point of the account. I'd guess 400 to 600 a year all in for one note. Though I've never held a note, I've only looked at this for a rental, so take the number softly.

kevin_lombard · Answer

I did not know the administrator and the custodian could be two different companies. So on the statement, whose name is the note actually in?

chriswalton8 · Answer

@juniper the note is made payable to the custodian for the benefit of your IRA, something like "ABC Trust Company FBO Jane Doe IRA number 12345". The administrator's name shouldn't appear on the instrument at all. If a fee schedule quotes asset-based pricing, check the cap. A 1,500 cap on 0.25 percent means you stop caring above 600k, which is a different decision than the one @ledger is making at 150k.

Rena Expert · Answer

Run the third schedule properly and it's the expensive one. 250 to open, 125 a year, 95 per transaction. Funding the note is one transaction. If incoming payments are transactions, that's twelve more, so 250 plus 125 plus thirteen charges at 95 is 1,610 in year one against a 300 flat plus maybe 50 to wire. On 150k earning 9 percent you've turned 13,500 into effectively 11,890, which is about 107 basis points of fee drag for administrative work.

The way most people solve the payment-posting problem is a third-party loan servicer. They collect from the borrower, handle the escrow and the year-end statements, and remit one payment or one ACH to the custodian. Published pricing tends to run 15 to 30 a month plus a small setup, and it converts twelve custodian transactions into twelve servicer charges that are usually cheaper. It also gives you an independent payment history, which matters enormously if you ever have to prove default.

On who pays the fees, custodians will generally let you pay from the IRA or bill you personally, and paying personally preserves more tax-advantaged capital inside the account. Whether an outside payment counts as a contribution depends on how the fee is billed and characterized, so confirm the treatment with your CPA rather than assuming, because contributions have annual limits and excess contributions carry a penalty.

The thing I'd actually shop on isn't price. It's how fast the custodian executes a funding instruction. Some take five to ten business days to review documents and wire, and a borrower who needs money Friday doesn't care about your custodian's queue. Ask each one for their stated turnaround on a note funding and get it in writing.

sonia_alvarez · Answer

Servicer also handles the 1098 to the borrower and the state-specific escrow rules, which you do not want to be personally doing for your own IRA's loan. Blurring that line is how people end up asking a lawyer an uncomfortable question.

aaron_fitz10 · Answer

So realistically 300 to 700 a year for one note, more if you add a servicer. That's smaller than I expected honestly.

What do custodians charge to hold one private note, all in?

7 replies