Who is the Custodian of My IRA?
Custodians safeguard IRA investments for safekeeping and ensure compliance with IRS rules, which in the case of self-directed IRAs may include permitting riskier investments like real estate and private placement securities.
Selecting an ideal custodian is paramount when managing an individual retirement account, taking into account fees, investment options and customer service as some key criteria.
Banks
Banks, insurance and mutual fund companies, brokerage firms and online robo-advisors all can act as custodians of IRA accounts; selecting the ideal option depends on your preferences, needs and goals.
If you plan to invest in non-traditional investments like real estate or private placement securities, search for a custodian who has experience handling them as well as no asset-based fees or transaction costs for each transaction.
Choose a company familiar with IRS regulations on prohibited investments such as collectibles and alcohol to avoid IRS penalties and taxes, while many IRA custodians offer educational resources on this topic to assist you with informed decision-making. It may also be worthwhile checking a custodian’s Better Business Bureau rating prior to signing on with them.
Mutual Fund Companies
Many financial companies provide custodial or guardian IRA services, including banks. Banks tend to offer more secure custody services with reduced fees; many also provide FDIC insurance on deposits such as mutual funds, CDs, and money market accounts; however they have restrictions regarding which investments can be held in custody.
Self-directed IRA custodians are non-bank trust companies that allow IRA owners to invest in non-traditional investments such as real estate, private lending or precious metals without losing tax-advantaged status. When selecting an IRA custodian, look for exceptional service such as depth of knowledge, timeliness of response and precision as measures of excellence.
Brokerage Firms
Traditional IRAs are generally custodied by banks, brokerage firms and mutual fund companies. These entities restrict assets in traditional IRAs to relatively safer investments such as mutual funds, exchange-traded funds, bonds or publicly traded stocks.
The ideal IRA custodians offer open communication channels – either online or by telephone – so investors can voice any concerns they may have and are charged reasonable fees such as annual account maintenance fees, load fees on mutual funds and trade commissions.
IRA investments such as real estate, private equity, precious metals or notes/loans require a custodian with experience processing transactions relating to these assets and in-depth knowledge regarding them from purchase through administration, tax reporting and sale. When searching for such an administrator look for one who understands these investments from purchase through administration and sale.
Insurance Companies
Insurance companies may serve as custodians of an IRA in certain situations. Insurance companies have been approved by the IRS to hold assets on behalf of investors who invest in an IRA with them; however, these entities don’t always offer as many investments or options such as certificates of deposit, money market mutual funds and stocks and bonds like banks or brokerage firms would.
If you are interested in investing in alternative assets such as private placement securities, cryptocurrency, or debt-financed real estate, make sure that the custodian you select understands all of their investments’ intricacies as well as any fees or charges the custodian may levy for its services – often these charges aren’t clear and may accumulate quickly.
Robo-Advisors
Administrators hold assets in an account, track contributions, investment gains/losses and produce statements for investors. An administrator may answer questions regarding self-directed investments such as real estate, precious metals, private companies and notes/loans but should not provide advice – that responsibility rests solely with their trusted financial, tax or legal advisor.
Custodians serve to safeguard retirement investments and ensure compliance with IRS regulations. Since custodians aren’t financial or tax professionals and won’t tell you where or how to invest, it is vitally important that when selecting an administrator or custodian company they support your desired types of investments – for instance robo-advisors partner with established custodians while using ETFs or index mutual funds which mimic market indices as investment options.
Comments are closed here.