Self-Directed IRAs and Plan Administrators

Who is the plan administrator for an IRA

Plan administrators play an essential role in overseeing the daily operations of retirement plans, acting as third-party administrators to process paperwork duties and ensure all transactions go through as intended. With Self-Directed IRAs, they ensure you can access alternative asset classes such as real estate, private equity, precious metals and tax liens for investing.

The Custodian

Behind every self-directed retirement account are two crucial players: the plan administrator and custodian. Some plan administrators and custodians operate separately while others work under a parent company umbrella; in either case, generally speaking the administrator oversees daily operations of the company while custodians handle paperwork management and account filing processes.

Custodians for Individual Retirement Accounts (IRAs) are typically large financial firms that specialize in safeguarding and processing an individual’s retirement account assets, including precious metals, real estate, private mortgages, tax liens, livestock, private company stock and non-traded securities. Furthermore, these custodians take care to comply with IRS regulations when investing or purchasing securities that need filing. Some may act as facilitators by serving on the front end of new account implementation, helping investors understand rules and implementation – however these types may provide limited services.

The Plan Sponsor

Dependent upon the structure of a retirement plan, plan sponsors are accountable for making key decisions and meeting legal obligations. Aside from selecting investment options to offer to participants and employers alike, plan sponsors also need to determine who may join and their contributions.

Plan sponsors often delegate investment selection and distributions to an outside investment advisor, while administrators need to make sure distributions to participants are handled appropriately.

Under-managing these roles can result in costly legal violations and lower employee morale, so it’s crucial that plan sponsors and administrators collaborate closely in order to create retirement plans that satisfy both employer needs and employee desires. Employers may use the IRS’ Employee Plans Compliance Resolution System (EPCRS) in order to correct errors and avoid disqualification of retirement plans; it enables employers to self-correct IRA plan failures without needing approval or paying an annual filing fee from the IRS.

The Employees

As its name implies, an Individual Retirement Account (IRA) allows employees to invest their own money tax-deferred until withdrawal time. They can choose among numerous investments including mutual funds and stocks. Their contributions are automatically taken out of their paychecks each pay period and remain tax-deferred until withdrawal.

Many small businesses are searching for an attractive retirement savings plan at an affordable price, such as a SIMPLE IRA plan that is ideal for companies with 100 employees or less. SIMPLE IRA plans provide lower administrative costs than their 401(k) counterparts as they do not require third-party recordkeepers, administrators, annual 5500 fees and discrimination testing fees compared with these traditional plans.

Consider a calendar-year C corporation owned equally by two shareholder-employees and three rank-and-file employees, all contributing the maximum allowable percentages of their salaries to individual retirement accounts (IRAs) as well as those belonging to rank-and-file employees. Furthermore, their owners desire to maximize benefits while simultaneously minimizing start-up and ongoing administration costs.

The Advisors

Over their lifetimes, employees accumulate retirement assets across various accounts. Starting with an individual retirement arrangement (IRA), then moving to work at companies offering 401(k) plans before rolling over those funds to an Individual Retirement Arrangement and finally self-employed and contributing to an SEP IRA is just part of it all.

Advisors who manage assets held within an IRA often have conflicts of interest when handling its management, particularly brokers, insurance agents or financial advisors who receive commissions on their products.

Advisors who recommend moving an employer-sponsored retirement account into an IRA run the risk of engaging in an activity prohibited under the Department of Labor’s fiduciary rule. When making this recommendation, advisers should only do so when it is clear that it will not lead to additional compensation in the future; direct rollover or trustee-to-trustee transfer methods may help in this respect.


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