Who Is the IRA Trustee?
Trustee accounts (IRA) are financial institutions responsible for overseeing individual retirement accounts under IRS regulations.
Example: If Amy is designated the beneficiary of your custodial IRA, she can withdraw distributions at any time after your death and spread them over 11 taxable years following it.
Custodian
Custodians are financial institutions that hold title to assets or investments within an IRA. According to IRS regulations, custodians must meet specific regulatory requirements and undergo regular audits as part of their duties as custodians; additionally they are authorized to produce statements and conduct transactions, unlike IRA administrators who do not enjoy such powers.
Selecting an IRA custodian is a key decision in your retirement portfolio, and should start by consulting the IRS’ list of nonbank custodians approved for nonbank IRAs. But beware: this list doesn’t cover every firm you should consider! Make sure that you do your due diligence by verifying licensing and registration with SEC, Financial Industry Regulatory Authority and state regulatory bodies before making your final choice.
Custodians that restrict your investment choices should be avoided. Some IRA custodians only permit investments in marketable securities like certificates of deposits and money market mutual funds; other may limit investments in alternative assets like private notes, real estate and precious metals. You should take steps to verify prices and returns listed in your self-directed IRA account statement.
Trustee
As more and more retirees transition their employer retirement funds to individual retirement accounts (IRAs), your organization could soon find itself managing multiple IRAs – which can create both administrative and bureaucratic difficulties if managed improperly.
IRAs are intended to serve as tax-deferred accounts, allowing you to move assets between custodian/trustee accounts without incurring taxes on them – something commonly done when rollover 401k plans have been converted to individual IRA accounts.
The IRS provides specific guidelines regarding contribution limits, income restrictions and required minimum distributions (RMD). Furthermore, fees related to an IRA provider need to be taken into account; otherwise these could eat into your retirement savings over time. Therefore it’s crucial that you select one with low fees or even consider one offering guaranteed returns over certain timeframes without incurring annual or trusteed IRA fees.
Beneficiary
Retirement accounts held with banks or brokerage firms often comprise the bulk of someone’s wealth, so it is essential that beneficiary information on file be accurate and up to date. Erroneous or outdated beneficiary designations have led to numerous instances of lost funds as well as costly legal battles between family members; ACTEC Fellows Richard Gans and Al Stashis recommend reviewing IRA beneficiary designations regularly.
Inherited IRAs:
When an IRA owner dies, his or her assets are distributed according to Internal Revenue Code provisions. Beneficiaries have various options available to them depending on the type of account and original owner’s capacity at death. Trusted IRAs allow financial institutions to continue managing and taking necessary actions such as taking Required Minimum Distributions (RMD). Conversely, Inherited Custodial accounts tend to stay frozen until either a guardian is appointed or Power of Attorney documents are signed off by attorney-in-fact or attorney-in-fact.
Taxes
As most people know, withdrawals from an IRA are subject to taxes. When taking out distributions from an IRA, your custodian or trustee will issue you a Form 1099-R and forward it directly to the IRS. Once you reach 70 1/2, however, RMDs (required minimum distributions) should begin as required minimum distributions in order to avoid penalties that could potentially exceed 10%.
Unfortunately, your IRA could fall into the hands of someone who does not manage or understand taxes properly and spends it all while incurring an enormous tax bill in one year. But there are ways you can safeguard it and ensure its survival.
One option is naming an alternative beneficiary who can seek professional advice and integrate your IRA management with other investments. Another possibility is moving IRA assets between financial institutions directly, or rolling them over. One per year. Another way is through trustee-to-trustee transfer.
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