Who is the Trustee of an IRA Account?
An IRA trustee acts as the caretaker, holding and overseeing assets held in trust for an IRA account. They must ensure all necessary tax forms and documentation is filed correctly.
Trusted IRAs retain full legal control, whereas with custodial accounts it passes on upon death to their beneficiary. Although this difference might seem minor, its effects can be profound.
Custodians
Custodians are financial institutions approved by the IRS to “custody” Individual Retirement Account (IRA) accounts and their assets. Investors choose a custodian for their individual retirement account in order to provide oversight, reporting, and compliance services related to the assets in their account. Custodians include brokerage firms or trust companies chartered by states as IRA custodians as well as online investment management platforms like Robo-advisers or Robo-advisors which meet all qualifications requirements as an IRA custodian.
For those seeking to invest in alternative investments like private placement securities or real estate through their IRA, choosing an appropriate custodian is critical. SDIRA custodians – usually non-bank trust companies – allow for greater investments than traditional IRAs.
Before selecting a custodian, it is wise to conduct extensive research using SEC and state regulatory resources as well as the Better Business Bureau. Furthermore, consulting a reliable financial adviser or attorney before making investment decisions is advised.
Fiduciaries
Fiduciaries must possess knowledge in numerous financial areas, including CDs, stocks, bonds and money market accounts. Furthermore, he must have an in-depth knowledge of modern portfolio theory (MPT), which involves building investment portfolios to achieve desired risk/return profiles.
Fiduciaries in IRAs must have an understanding of state trust law and how to abide by the instructions of their IRA beneficiary. Furthermore, they should be capable of verifying information listed on self-directed IRA account statements such as asset prices or values – whether through independent professional valuation services or tax assessment records.
Self-directed IRA custodians typically don’t provide investment advice or assess alternative asset investments – which is the responsibility of the IRA owner – instead, their fees come from facilitating transactions according to your direction and providing custody for any alternative assets held within an IRA account.
Choosing a Custodian
Custodians who lack industry expertise can cost you money. In fact, lack of industry expertise is often one of the top complaints from IRA holders about their former custodian.
When selecting an IRA custodian, be sure to consider their knowledge in your preferred investment class. For example, if investing in real estate with your IRA, find out how many transactions they’ve handled so far. Additionally, inquire whether any representatives are Certified IRA Services Professionals or attended courses specifically related to retirement accounts.
If you are interested in investing in alternative investments such as mortgage notes, tax liens or physical gold and silver, look for a custodian who specializes in these assets. Keep in mind that self-directed IRA custodians cannot offer investment advice; that role belongs to fiduciary trustees only.
Be mindful of any fees charged by custodians; make sure their fee structure aligns with your investment strategy. Every IRA custodian charges some kind of transaction or asset-based fee.
Choosing a Trustee
Selecting an IRA custodian is of vital importance, and banks, brokerage firms or insurance companies all make suitable options.
Trusted IRAs provide powerful estate planning opportunities, such as “forcing” spendthrift beneficiaries to maximize the value of a stretch IRA, restricting creditors’ access, and controlling how successor beneficiaries of an inherited IRA asset distribution (e.g. blended family situations).
However, for an IRA to achieve its desired goals it must be carefully structured. For instance, if two of three children are fiscally responsible while the third one isn’t it may be best to place it in an accumulation trust as opposed to a conduit trust – the IRS mandates distributions over life expectancies of beneficiaries (or at least over those living the shortest lives) rather than paying income tax on all RMDs whereas an accumulation trust allows your trustee to accumulate them all within it instead.
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