Can I Be the Custodian of My Own IRA?
Custodial fees associated with an IRA account can rapidly drain away retirement savings. When researching and comparing fees, be sure to compare and understand their structure – look out for annual account maintenance fees, load charges (for mutual funds), and trade commissions among others.
Custodian banks that provide self-directed IRA services must comply with IRS regulations and have extensive experience managing alternative investments, among others. Be sure to inquire about their experience and expertise.
Banks
Banks, credit unions and savings associations can act as custodians of individual retirement accounts (IRAs), but must first secure IRS approval to offer self-directed IRAs (SDIRAs). They must submit to an extensive application process before being accepted. Once approved they must provide capital pledge, liability insurance and a fidelity bond as security deposits for investors using them to invest in non-marketable assets or private investments that require more of an active role from account holders.
Custodians should never offer investment advice as this is an easy way for fraudsters to gain your trust. Administrators and facilitators, which do not hold assets themselves but simply provide administrative services like marketing, selling and executing an LLC owned by an IRA, act as intermediaries between account owners and custodians; in addition to compliance, data entry and reporting responsibilities they can also help with compliance, data entry or reporting requirements; they cannot give legal or investment advice though.
Mutual Fund Companies
Mutual fund custodians can offer investors access to an array of publicly traded investments such as stocks and bonds. Furthermore, these custodians may provide FDIC-insured investments such as certificates of deposit or money market mutual funds for safe keeping.
As when selecting any custodian for any investment vehicle, when it comes to self-directed IRAs it’s best to find one offering a range of investment options at low fees – these may include account maintenance fees, mutual fund load charges and trade commissions. Furthermore, seek a company that understands which investments the IRS does not allow within an IRA – such as collectibles and alcohol beverages.
Some IRA custodians specialize in traditional investments (stocks, bonds and mutual funds) while other (“self-directed”) focus more heavily on alternative investments like real estate, private mortgages, tax liens, livestock and physical gold and silver. A custodian who specializes in traditional investments may not be the ideal option when looking to store alternative assets such as real estate or private mortgages; an online site designed for self-directed IRAs should make navigation and monitoring of your account easy.
Administrators
Administrators don’t meet all of the IRS requirements to be considered custodians, yet can still provide similar services. Administrators work directly with self-directed IRA owners or act as intermediaries between themselves and multiple custodians. Administrators tend to be individuals or small companies who charge an administration fee in order to help clients open new accounts and get started with their self-directed IRAs.
Custodians include banks, trust companies, credit unions, non-depository institutions and brokerage firms offering self-directed IRAs. Each must possess the ability to hold your chosen investments safely while being subject to IRS regulation.
When searching for the ideal custodian, look for low or flat fees and excellent customer service. Be mindful of how quickly questions can be answered, as well as if knowledgeable representatives have knowledge about all your investment options including real estate. In addition, these representatives should understand which investments the IRS prohibits within an IRA (such as collectibles and alcohol beverages), to ensure your IRA remains compliant.
Facilitators
Facilitators serve as intermediaries between an IRA owner and the custodian that holds their investment assets. These companies often offer various services, including education on investing privately as well as assistance with IRS regulations and implementation, purchase/sale facilitation of assets within an IRA account as well as purchase/sale assistance of assets within the account – however they should not be relied upon as sources for financial advice; that should remain with your financial advisor alone.
Not all IRA custodians specialize in alternative investments like real estate or precious metals; you have other options to consider as well. Such companies tend to have access to more options than banks or brokerage firms can. Annual maintenance fees, commissions on trades, mutual fund loads are just some of the fees these providers may charge, so before making your choice it is essential that you understand all costs involved before deciding to use one of these firms.
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