Who Is the Plan Administrator for an IRA?
Plan administrators are accountable for maintaining records and complying with regulations related to retirement accounts, often contracting outside investment firms to manage buying and selling operations on their behalf.
Every IRA has a sponsor, administrator, Named Fiduciary and trustee with specific responsibilities that help ensure its compliance with IRS regulations. Understanding these roles helps ensure a Self-Directed IRA operates according to these regulations.
Custodian
Self-Directed IRA custodians serve as neutral third parties who are charged with handling all paperwork and administration associated with your retirement account, while adhering to strict IRS banking regulations for your security. Custodians typically belong to banks or trust companies, who have been authorized by the IRS as holding accounts in this manner.
Custodians do not provide financial advice and only determine whether investments meet administratively feasible criteria, such as satisfying operating systems and procedures of their custodial partner. In addition, custodians do not perform due diligence on investments – instead relying solely on information provided by investors themselves for evaluation purposes.
When selecting an IRA custodian, look for one with a wide range of investment options at reasonable fees, an intuitive website user-experience and outstanding customer support services. If you plan on investing in alternative assets such as real estate or hedge funds, be sure that your custodian has experience handling such assets.
Trustee
A trustee oversees a plan’s assets to ensure compliance with IRS regulations, as well as provide advice about structuring your company’s 401(k).
The trustee is typically charged with hiring, evaluating, and monitoring fiduciary service providers such as custodians and investment managers. They may opt to employ a 3(38) investment manager instead, which relieves them of much of their fiduciary responsibilities for selecting and overseeing investments.
Self-Directed IRA administrators may act as custodians as well, though most will partner with another custodian to fully execute transactions. When opening an account, it’s essential to distinguish between a custodian and administrator since each has different responsibilities: custodians will hold onto any investments such as real estate or precious metals while administrators are responsible for dealing with all IRS paperwork including quarterly statements, document processing services and compliance services required of them.
Fiduciary
An IRA custodian must be an IRS-approved institution such as a bank, credit union, savings and loan association or trust company. They hold title to and physically manage investment assets within an IRA – such as real estate, private equity and cryptocurrency investments – while writing checks or wiring funds to pay expenses and investments of the IRA.
Self-directed IRA custodians often play an advisory role by informing clients about nontraditional investments that are allowed and their respective merits, in addition to handling ministerial tasks such as filing with the IRS and providing reports for client tax returns.
Under ERISA, 3(16) plan administrators are obliged to carefully select and monitor their recordkeeper, directed trustee and any fiduciary service providers they hire, so as not to engage in prohibited transactions and adhere to fiduciary standards of care, loyalty and prudence. Because of this obligation, many 3(16) administrators turn to service providers willing to assume fiduciary responsibilities with fees based on risk-taking capacities as their go-to providers for ministerial tasks.
Plan Administrator
Plan administrators provide all of the administrative duties necessary for running a retirement plan on a day-to-day basis, such as overseeing investment portfolios, tracking contribution amounts and filing any associated paperwork. They often charge either a flat rate fee or one determined by plan assets as compensation for their services.
Every retirement plan must have a sponsor, administrator (3(16), Named Fiduciary and trustee. A plan sponsor may assume all these roles themselves or enlist another entity as their fiduciary in their place.
In most cases, this entity will also serve as custodian and trustee. A plan administrator could be an individual, a company, or an independent third party service provider; with regards to Solo 401(k), business owners usually play both roles themselves whereas larger organizations typically outsource plan administration to external third parties for cost efficiency reasons.
Comments are closed here.