Who Can Be the IRA Trustee?
IRAs are long-term savings accounts with potential for growth that can be opened at banks, credit unions or brokerage firms.
Trusted IRAs are managed through a trust document created and agreed upon by their owner (with a Financial Institution acting as trustee), while custodial accounts simply contain funds in an account itself. While this difference may seem minor, it can have serious tax ramifications when inheriting one.
What is an IRA?
An Individual Retirement Account, or IRA for short, provides tax advantages to individuals who save into these plans during their careers. When an IRA passes on to its heirs after its owner dies, it can help manage assets of heirs such as restricting them from liquidating it immediately or spreading out payments over a longer period of time to maximize tax advantages.
An Individual Retirement Account, or IRA, differs from employer-sponsored plans such as 401(k) in that its assets must be legally controlled by someone other than an investment manager; hence, trusteed IRAs may not appeal to beneficiaries as much as self-directed ones due to legal control issues; alternative investments can include real estate or private mortgage investments for greater flexibility if any administrative or investment management services become unsatisfactory in the future.
Who can be a trustee of an IRA?
According to the IRS, an IRA trustee may include banks, credit unions, financial institutions or authorized trust companies. An IRA custodian’s responsibility includes managing and reporting investments back to the IRS.
An IRA trust allows its owner to appoint a trustee who also acts as investment manager, which can be particularly advantageous for clients who wish to preserve a stretch IRA and stretch out distributions over multiple beneficiaries’ lives.
An IRA trust may also offer protection from divorce complications. Being held within a trust means it doesn’t pass directly to your child as marital assets and may therefore be protected from creditors and divorce litigation, something particularly relevant in blended families. Furthermore, such trusts protect IRA assets against estate tax upon their death.
What are the requirements for being a trustee of an IRA?
Trustee of an Individual Retirement Account must possess a thorough understanding of state trust law and IRS rules applicable to these accounts, including how best to handle assets within an IRA (such as collectibles or real estate investments).
Dependent upon how an IRA is established, trustees may need to understand applicable laws regarding minimum distributions and beneficiary designations. Furthermore, they should have the capability of discerning whether an investment violates IRA regulations; examples include holding precious metals (except gold bullion) or owning closely held businesses.
An IRA Legacy Trust can protect an heir’s inheritance from creditors and predators, helping to avoid public assistance termination and increase overall wealth management. Typically these trusts become irrevocable upon death of the IRA owner.
How do I become a trustee of an IRA?
As trustee of an IRA, your role is to oversee its growth and distribution according to IRS regulations and protect its assets in accordance with account owner wishes.
Many people choose their spouse or children as beneficiaries for their IRA accounts, however it’s also possible to name a trust as beneficiary for an IRA account, providing protection from creditors while giving more flexibility when it comes to deciding how best to distribute its assets.
As an IRA trustee, your duties as such include maintaining accurate records and filing transactions with the IRS as well as making required minimum distributions (RMDs). Banks tend to act as trustees and custodians for IRA accounts while brokerage firms, mutual fund companies and other nonbank entities need special IRS approval in order to act as trustees or custodians of IRA accounts as they may provide more investment options or lower fees than banks do.
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