Can I Be My Own IRA Custodian?
As the IRS requires institutions licensed and regulated by them to manage IRA accounts, you cannot be your own custodian of an IRA account. Different custodians offer differing customer testimonials, security protocols and fees so it is wise to shop around before selecting your custodian.
Assess their representative’s knowledge about IRA investments; are they capable of responding confidently to your inquiries about them?
What is a Self-Directed IRA (SDIRA)?
Self-Directed Individual Retirement Accounts (SDIRAs) provide investors with an alternative form of investing that goes beyond traditional Wall Street. An SDIRA may be opened with an administrator that is capable of handling nontraditional investments for retirement accounts.
SDIRA holders often utilize their tax-deferred or tax-free IRA money to invest in alternative asset classes, including real estate, precious metals and private company shares. There are certain restrictions and guidelines which must be observed when investing in alternative assets for retirement purposes.
An SDIRA can provide your retirement portfolio with access to unique investment opportunities not available through traditional investments, and could bring potential increases in yield and more control of retirement savings. However, if any income generated from SDIRA investments does not fall within its tax-exempt purpose (i.e. saving for retirement) or leverage is used, IRS taxes may apply on distributions from it.
What are the benefits of a SDIRA?
Self-directed IRAs give many investors the ability to diversify their investments and expand their investment options, giving them greater protection from sudden market shifts or currency devaluations.
Self-directed IRAs require time and effort to properly manage. You’ll need to research investment opportunities, conduct due diligence on potential assets and abide by IRS regulations relating to prohibited transactions and disqualified persons.
As part of an effort to make this process as painless and stress-free as possible, we recommend selecting an experienced custodian that provides multiple investment categories (e.g. real estate and precious metals). Doing so may eliminate the need for your IRA funds to commingle with non-IRA entities and may reduce fees; additionally it could help avoid unapproved investments sold through fraudulent custodians.
How do I choose a custodian?
Custodians are financial organizations that oversee investments held within an individual retirement account (IRA). In addition, they report their activities to the IRS and ensure investors adhere to contribution limits, age restrictions and IRA rules. Custodians could include banks, trust companies or other institutions regulated by state or federal authorities.
Selecting the appropriate custodian for your SDIRA depends on what kind of investments you wish to make. Traditional IRA custodians like banks and brokerage houses tend to focus on mainstream assets such as CDs, mutual funds, equities, bonds and deposits; these may not be ideal choices when investing in alternative assets such as real estate, promissory notes, private equity or oil and gas.
When selecting a custodian, look for one who specializes in your desired investments and provides user-friendly website and customer service. Also compare fees; an ideal custodian should offer services with minimal or no maintenance and transaction fees.
What are the fees associated with a SDIRA?
While fees associated with maintaining an IRA account cannot be avoided, custodians may charge one-time setup, annual renewal and investment bill paying charges when selecting one as your custodian. When considering any potential custodian, inquire about these and any additional miscellaneous expenses that may apply.
Custodians should go beyond simply charging fees by providing educational materials on how to invest in self-directed IRAs and any restrictions or rules in place both nationally and industry-wide.
Finally, an ideal custodian should offer fast transaction processing times to enable investors to take full advantage of any opportunity that arises – this is particularly relevant when investing in alternative assets such as real estate, where timing of offers can be crucial. Furthermore, they should support both IRA and SDIRA accounts, giving greater diversification options while taking full advantage of tax-free retirement accounts.
Categorised in: Blog