Who is the Trustee of an IRA?
An IRA trustee is defined as any institution that acts on behalf of its owner to hold their retirement savings account securely and safely for them. They could include banks, credit unions, financial institutions or brokerage firms.
Utilizing a trust as beneficiary to hold an IRA offers numerous advantages not available with traditional trusteed IRAs, including increased flexibility, robust spendthrift protection and shielding estate taxes.
An IRA trustee is the financial institution entrusted with managing and holding alternative assets within a self-directed IRA account, while also adhering to IRS rules and guidelines. Most IRA custodians are banks or bank trust departments, while some financial services providers also maintain separate trust company subsidiaries to serve as trustees for individual retirement accounts (IRA).
Many IRA providers are now offering trusteed IRA alternatives, which may provide owners with a way of virtually guaranteeing they retain control of an inherited IRA and prevent it from being taken away by future beneficiaries. It should be noted, however, that an independent trust set up as beneficiary for an IRA may do much of what a trusteed IRA does — including restricting access to spendthrift beneficiaries and offering creditor protection; in addition to this feature it may ensure financial advisors or investment managers remain associated with it and potentially provide better results than custodial trustees alone.
Although IRAs are often associated with banks, brokerage firms and robo-advisors can also act as custodians of this form of investment account. Investors can purchase various assets like individual stocks, mutual funds, ETFs and annuities through these forms of custodial services.
Once an IRA account owner dies, their assets become the responsibility of their beneficiaries who can access and liquidate the money within it – this presents risks of irresponsible spending as they could spend down too quickly or face creditor protection issues.
Some individuals opt to name a trust as the beneficiary of their IRA to safeguard against these risks. A trusteed IRA allows owners to set specific provisions regarding inheritance of retirement savings from them; this can help to minimize risks such as recipients wasting or dispersing it to creditors or ex-spouses, while at the same time taking advantage of tax benefits by “stretching out” the payments over their life expectancies rather than taking an immediate lump sum distribution.
There are various business entities that can act as trustees for Individual Retirement Accounts (IRA). Banks, credit unions, savings and loan associations and brokerage firms all can provide this service and meet federal regulations regarding how these tax-advantaged retirement assets should be administered.
A trusteed IRA differs from a custodial IRA in that a Financial Institution serves as its trustee rather than simply holding onto assets on behalf of their owner, following instructions given from him/her directly. Although this might sound like minor distinction, this can make all the difference for beneficiaries who wish to avoid irresponsibly spending down an inherited IRA and maximize tax advantages of spreading distributions over their lifetimes.
Use of a trusteed IRA may also help overcome restrictions on beneficiary ownership of the account, such as when supporting someone with special needs who would otherwise prevent them from owning assets on their own. Furthermore, trusteed IRAs offer additional protection from creditors’ claims.
A trustee of an IRA is an entity responsible for overseeing and administering its account, making prudent investment decisions, as well as overseeing security. This differs from a custodian who is solely accountable for holding onto assets within an IRA; thus making the distinction crucial because only trustees can provide comprehensive financial advice services, not custodians.
Trustee services allow IRA owners to designate multiple successor beneficiaries of an IRA after their death, giving them full control of who will inherit their account after death. This can be especially helpful if the account owner has children of widely divergent ages, or for individuals with special needs.
A trusteed IRA differs from its custodial counterpart in that a Financial Institution serves as its trustee. This has several practical advantages, including enabling full management even if an account owner becomes incapacitated; however, it can create some complications regarding post-death stretch period determination.
Categorised in: Blog