A bank, credit union, or non-depository bank that complies with strict regulations is known as an IRA custodian and is authorized to hold assets in an IRA. Both state and federal authorities oversee these custodians, ensuring the implementation of rigorous policies, procedures, and internal controls.
How to Choose an IRA Custodian
After conducting thorough research on your custodian and investments, these crucial questions will assist you in finding the suitable custodian for your self-directed IRA. Once you have completed the necessary due diligence, you can proceed with implementing your retirement strategy involving alternative assets.
Does the IRA Custodian Have Adequate Size, Scale and Expertise?
A custodian who has few assets under custody or a small number of unique positions accepted on the platform may have limited expertise and capabilities.
The level of experience and expertise of a custodian can be determined by the size of their business. Moreover, as the top choice for clients who wish to invest their retirement funds in non-exchange-traded assets, we have extensive knowledge of the IRS guidelines for holding alternative assets in an IRA.
What Is the IRA Custodian’s Client Service Model?
If you don’t have access to a responsive client service team, setting up and maintaining your self-directed IRA with a new custodian can prove to be a complex and time-consuming task.
What Is the Custodian’s Scope of Area Coverage?
If you are located outside the area of smaller, localized custodians, you may experience restricted access to their services due to their narrow geographic focus.
What Lines of Business Does the IRA Custodian Support?
It’s crucial for financial professionals seeking a self-directed IRA custodian for their clients to choose one with a well-established advisor support system.
Does the Custodian Specialize in a Particular Type of Alternative Asset?
Asset specializations of custodians, such as private placements, private stock, LLPs, hedge funds, LLCs, direct real estate, or exchange-traded assets, can sometimes impose limitations based on your specific alternative investment requirements.
The Responsibilities Of A Self-Directed IRA Custodian
Non-bank trust companies make up the greater part of Self-Directed IRA custodians due to the factors mentioned earlier.
Usually, the Self-Directed IRA custodian or trust company will have a partnership with a bank that will store the IRA funds in a designated account known as an omnibus account, securing each Self-Directed IRA client’s funds with FDIC protection up to $250,000 held in that account.
Below are the duties and obligations associated with being a custodian for a Self-Directed IRA.
- Record keeping.
- Answering questions about your account.
- Must be IRS approved.
- Permitted to hold and custody IRA and 401k plan assets.
- Subject to state regulation.
- Review of your Self-Directed IRA assets.
- Assisting in opening & funding your IRA account.
- Making investments on your behalf (unless you choose to do so.)
- Making distributions & paying expenses per your request.
- Providing you with quarterly statements.
- Reporting information required by the IRS and other governmental agencies.
What are the Differences Between a Self-Directed IRA Custodian and Third-Party Administrator?
The IRS has authorized and regulates all IRA custodians, including banks, financial institutions, and approved trust companies, to perform their duties as IRA custodians.
However, as the IRS exclusively approves actual custodians, they alone have the authorization to physically possess retirement assets within this group. The role of IRA custodians is essential for investing with IRA funds.
An IRA administrator, who is neither authorized nor supervised by the IRS or any state banking regulators, is unable to directly possess IRA assets. Instead, these administrators primarily serve as intermediaries between the IRA owner and a partnering custodian.
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