Can I Be My Own IRA Custodian?
Self-directed IRA custodians may only hold assets and fulfill administrative functions; they cannot approve, recommend or conduct due diligence on investments opportunities.
Be sure to select a custodian who has staff with extensive asset class knowledge. Furthermore, inquire into fees to make sure they align with your budget.
Qualifications
Business owners often need to juggle multiple priorities at the same time and may put off saving for retirement, yet one day it may become necessary. One option available to small-business owners for retirement planning is a Simplified Employee Pension (SEP) account.
SEP IRAs (Simple Employee Pension IRAs) allow employers to make pre-tax contributions for themselves and eligible employees through an employer sponsored retirement account, with similar investment, distribution, and rollover rules as traditional IRAs.
As the employer, you must select a financial institution as the trustee and custodian of your SEP IRA. The trustee will identify eligible investments and provide annual statements for each participant while reporting distributions to the IRS.
Your employer should also determine whether and how much SEP contributions should be made every year, then notify employees annually about what you intend to contribute and when. Your notice must include details regarding compensation definition and allocation formula for contributions made under SEP plans.
Fees
SEP IRAs allow self-employed individuals to save up to 25% of their company earnings tax-deferred into retirement accounts up to a maximum limit of $66,000 or $212,000 depending on when the plan starts up and who manages the assets within. A business owner needs only fill out IRS Form 5305-SEP in order to set one up, selecting a custodian or trustee for managing its assets.
A trustee will present the plan with an adoption agreement and statement of investment opportunities to provide to employees. In addition, plan sponsors must inform employees of their SEP withdrawal rules which include income taxes as well as an early withdrawal penalty of 10% for withdrawals prior to age 59 1/2.
Some custodians charge flat fees while others may assess transaction or value-based charges. It’s best to choose one with an obvious fee structure and commitment to managing your account from start to finish – for instance, some provide digital real estate management options as well as checkbook control features that reduce transaction times.
Transparency
No matter your level of experience as an investor or the stage in which they find themselves investing, selecting an IRA custodian may seem like a daunting task. Some investors may be unfamiliar with its many acronyms or options and this process may become daunting quickly.
Banks, insurance companies, mutual funds and brokerage firms all serve as potential IRA custodians; some offer greater investment choices such as real estate or private company stock than others.
Some IRA custodians specialize in traditional investments while others offer self-directed IRAs that can hold alternative assets such as real estate, private mortgages, tax liens, livestock and physical gold and silver. When selecting an IRA custodian you should choose someone who understands these investments along with any associated regulations and rules.
As part of your search, it is also important to take note of the fees charged by custodians. Some charge transaction fees while others utilize an asset-based fee model; when selecting a custodian it should fit within both your investment strategy and budget.
Experience
Financial institutions that can serve as custodians of individual retirement accounts (IRAs) include banks, insurance companies, mutual funds, brokerage firms and online robo-advisors. Some may specialize in traditional investments like stocks, bonds and funds while others (known as self-directed) specialize in alternative assets like private placement securities, real estate investment trusts or physical gold and silver investments.
Self-directed IRA custodians must go through an intensive application process in order to demonstrate they comply with IRS regulations and are capable of fulfilling their responsibilities as custodians for these assets. Furthermore, these providers may need liability insurance and fidelity bonds among other requirements.
Consideration should also be given to customer service offered by custodians. Monitor how quickly they respond to questions, as well as any open channels of communication (online or over the phone). Avoid dealing with custodians who do not communicate effectively or process transactions efficiently.
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