Can I Be the Custodian of My Own IRA?

Custodians for Individual Retirement Accounts are banks, financial institutions or approved trust companies authorized by the Internal Revenue Service to safeguard retirement assets and follow its rules regarding prohibited transactions.

Finding an ideal custodian can be challenging for self-directed IRA owners. Considerations include offering an array of investments with low fees and offering user-friendly website experience.

1. Compliance

The Internal Revenue Service lays down strict rules regarding which custodians can manage individual retirement accounts (IRAs). A custodian generally includes banks, savings associations and federally insured credit unions as they will oversee transactions, issue statements and file IRS reports as well as educate account owners regarding prohibited transactions.

IRA custodian that offers nontraditional investments like real estate or precious metals should also specialize in alternative investments to capitalize on any opportunities quickly when they present themselves.

An ideal custodian should have a large business with numerous assets under its management. This indicates the highest levels of security, stability and customer service are in place at Madison Trust with over $4 billion under custody and over 15,000 clients, showing our ability to accommodate an array of asset classes.

2. Fees

IRA custodians are certified institutions that are charged with safeguarding investments, complying with IRS regulations, and reporting back to them. While they may charge fees to manage an IRA’s portfolio and manage it accordingly, unlike money managers or accountants they may also allow you to claim up to 2% of your AGI as misc itemized deductions on your taxes.

Fees associated with investments can take the form of annual account maintenance fees, mutual fund loads or trade commissions and can have an enormous impact on your return.

Selecting an IRA custodian with low fees is critical to your self-directed investing success. Find a company with expert knowledge in alternative assets and an attractive fee schedule, plus Certified IRA Services Professionals familiar with custodial and accountholder responsibilities who understand real estate, private equity and other nontraditional investments to ensure maximum potential growth potential for your IRA.

3. Investing

Custodians typically only allow marketable securities as investments and do not permit alternative assets like private placements or rental real estate due to the complexity and paperwork requirements for such investments.

Individuals looking for more options in their IRA should consider opening a Self-Directed IRA. Under this option, the account holder assumes more responsibility in making investment decisions while the custodian only handles paperwork related to this account.

A great Self-Directed IRA custodian will have systems and processes in place to streamline paperwork, reduce delays, and provide clear answers about fees. Fees should be disclosed upfront and could include annual account maintenance fees, load fees charged on mutual funds and trade commissions. Madison Trust uses an easy to comprehend flat-rate fee schedule – one reason our clients prefer us over other custodians as it never surprises clients with hidden charges; in fact we offer among the lowest fees in the industry for Self-Directed IRAs!

4. Taxes

The IRS mandates that each individual retirement account (IRA) have an appointed custodian, who will ensure that investments made within it adhere to regulatory requirements. Custodians usually include banks, financial institutions and non-depository trust companies approved by the IRS – though some specialized custodians allow alternative assets like real estate or private investments within an IRA account.

When selecting a custodian, make sure they understand the investments your IRA is going to invest in. Look for custodians that specialize in specific strategies, like real estate or precious metals; ask how much experience they have before making your selection.

Consider their fees carefully: the annual account maintenance fee, load (charges in mutual funds) and trade commissions should all be evaluated against other custodians in the industry for comparison purposes. Your goal should be to find one with fees that are fair and competitive with others in this space.