Warning: Don't let administrators act as custodian

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To have a self-directed IRA, unlike a Solo 401k, you must have a self-directed IRA custodian… and you should stay away from unregulated companies masquerading as a custodian. A self-directed IRA custodian is one that will have less investment restrictions than the more common tradition stocks/bonds/funds brokerage-type custodian, and they usually allow investment into real estate, private companies, and other alternative assets.

An IRA is technically a trust, and a custodian is basically a trustee who performs fewer duties than a trustee usually would. As the name suggests, the sole duty is custody-holding assets and/or property on behalf of the trust.

The Internal Revenue Code says that the IRA custodian role can only be served by:

A bank
A trust company (this is the most common type of company to serve as self directed IRA custodian)
A company specially & specifically approved by the IRS (this is very rare)

So, essentially, in the self directed IRA market, most custodians are chartered as trust companies. A trust company is basically a bank that doesn’t lend money. Trust companies are usually audited and regulated by the same state or federal agencies that audit and regulate banks. There are a couple dozen trust companies who offer custodial services for self-directed IRAs. There is also at least one company that offers custodian services without being chartered as a bank or trust company.

The risks of hiring an illegitimate custodian

Little to no regulation. Banks and trust companies are audited and regulated by state or federal regulators.
Risk of failure or fraud – Unregulated companies have nothing to lose. Starting and maintaining a bank or trust company is costly. A regulated bank or trust company is usually not going to misappropriate funds or just disappear overnight. This is because it has a lot to lose: the money it took to start and maintain the company and the future profits it will enjoy if it plays by the rules and stays in business.
Risk of failure or fraud – Unregulated companies have no minimum net worth requirements to be in business. Starting a bank or a trust company requires the owners to meet minimum net worth requirements and have a clean criminal record. An unregulated company has no such requirements – there is no capitalization requirement in most states to just register a corporation or LLC. People operating an illegitimate custodian company have gone through no regulatory approval process. They could have declared bankruptcy recently, have felony convictions, and have a net worth of less than zero dollars.
Your IRA might be deemed to have been taxably distributed when you hired the illegitimate custodian. Because the law defines an IRA as a trust held at a trust company, one held at an illegitimate custodian is technically not an IRA at all. When you rollover your old IRA, the funds must arrive at a real custodian within 60 days. If that doesn’t happen, you owe income taxes (and possibly early distribution penalties if under age 59 1/2 at that time) on the account balance. Putting the funds at an illegitimate custodian for more than 60 days means you’ve technically distributed your IRA. If this isn’t dealt with for several years, you may be racking up interest to the IRS in addition to the taxes. As salt in the wound, the funds left over will not have any tax favorable treatment for future profits.