Who is the Trustee of an IRA?
Trusted IRAs combine tax-advantaged growth with professional management now and into the future, as well as providing you with an opportunity to choose successor beneficiaries for any remaining amounts in your account after your death.
Federal rules allow Individual Retirement Accounts (IRAs) to invest in most publicly traded and some private assets like real estate and debt-financed investment opportunities; certain investments, however, are forbidden.
Custodian
Custodians (also referred to as trustees) play an essential role in keeping an individual retirement account (IRA) tax-deferred or tax-free status. They safeguard your assets for safekeeping while adhering to IRS and government regulations at all times. Choosing an IRA custodian depends on its purpose and intended investments – marketable securities such as mutual funds or stocks do not typically need one, while investments such as real estate or private notes typically do.
Traditional IRA accounts typically use banks, brokerages or mutual fund companies as custodians; assets in such accounts tend to consist of low-risk publicly traded securities. With self-directed IRAs however, a custodian will facilitate non-prohibited transactions upon exclusive direction from account owner; they do not provide investment advice; instead it remains up to account owner to conduct due diligence before authorizing purchase with custodian.
Fiduciary
Fiduciaries act in the best interests of an IRA owner and must abide by the Employee Retirement Income Security Act and Internal Revenue Code rules. Under those rules, fiduciaries are expected to provide reasonable, personalized advice that suits each investor in an IRA account. Furthermore, fiduciaries must disclose information regarding their fees and performance – such as those they charge for services they render – along with fees charged.
IRA owners may wish to transfer their assets into a trust, with designated beneficiaries for future inheritence of those assets. This can help avoid the complexities and expenses associated with probate while simultaneously reducing estate taxes; however, trustee fees could become an additional cost factor.
Trust-directed IRAs allow account holders to invest in nontraditional investments while protecting them from creditors. While an inherited IRA doesn’t usually provide this protection, properly structured trusts do. This is essential as beneficiaries may lose access to funds if required minimum distributions (RMD) don’t arrive by their scheduled due dates.
Beneficiary
Beneficiaries who inherit an IRA account have many choices available to them when inheriting one from the original owner, depending on its type and age of its original holder. It would be prudent for beneficiaries to speak to a tax or financial professional prior to making any definitive decisions.
Beneficiaries can often benefit from having a trust serve as their IRA custodian, as this can help circumvent restrictions on beneficiary ownership and provide for those with substance abuse or gambling issues.
Trust trustees can restrict beneficiary access to an inherited IRA asset by setting rules governing their use. For instance, they might stipulate that only RMDs be taken out each year to avoid incurring penalties; or require withdrawals be spread out over their life expectancy rather than paying taxes all at once.
Taxes
When an IRA owner dies, his or her assets must pass to one or more beneficiaries. Most often they name their spouse as the primary beneficiary; other options could include children, grandchildren or charities; alternatively he/she could appoint a trust as beneficiary.
Trusted IRAs offer greater flexibility and protection from creditors. A trusteed IRA can allow beneficiaries to exceed their RMD for emergencies such as medical costs or home purchases; additionally, these accounts can be structured to protect against known creditors of beneficiaries.
However, it’s important to keep in mind that not all custodians provide trusteed IRA options. To select an eligible custodian such as Equity Trust for your IRA assets.
Comments are closed here.