Why Does My IRA Have a Custodian?
An IRA custodian is any entity approved by the IRS to hold your retirement assets safely. Banks, brokerage firms and mutual fund companies typically serve as custodians.
Custodians typically limit their investments to marketable securities as these do not generate fees from holding assets such as real estate and closely held businesses.
Custody
Custodians provide safe storage for your IRA investment assets. A custodian may be a bank, investment firm or insurance company. A custodian stores both physical and electronic assets (such as gold) securely. A good custodian should send you monthly or quarterly statements about account activity while processing transactions for your IRA account.
When selecting a self-directed IRA custodian, make sure they have experience dealing with investments similar to what you plan on making. Some custodians, such as banks or financial institutions that rely heavily on investment related fees as their revenue stream are limited compared to real estate or precious metal investments, so when making your choice make sure the right custodian has experience dealing with those investments too.
When faced with these scenarios, you may be able to switch custodians in order to invest in alternative assets. Be sure to factor in costs such as annual account maintenance fees, load fees charged in mutual funds and trade commissions when considering potential IRA custodians.
Recordkeeping
Most traditional custodians only permit their IRA clients to invest in marketable securities – this is how they generate fees – while they may limit what kinds of alternative investments they will accept depending on their experience handling them.
SDIRA custodians fulfill an increasing need among retirement account holders who wish to invest in non-prohibited alternative assets like real estate, private equity and hedge funds with their retirement account funds. Their job is to facilitate these investments under the direction of account owners who maintain control through authorized signatures.
Custodians must be qualified and adhere to stringent banking regulations when performing these services, providing educational materials such as websites, videos, podcasts and apps that help IRA owners understand the process and rules – this could include websites, videos, podcasts or apps as well as information on regulatory or licensing status to allow investors to make more informed choices when selecting which firms to work with.
Investments
Every IRA needs to be managed by a custodian and administrator. A custodian must abide by stringent banking regulations, while regular state and IRS audits ensure compliance.
Traditional IRA custodians generally only provide clients with IRS approved investments like stocks and mutual funds to generate fees, since most custodians are banks or financial institutions generating most of their revenue from this source.
There are independent IRA custodians available who can facilitate alternative investment options for your self-directed IRA such as real estate, private equity, lending and precious metals. Not all custodians are created equal; when selecting one to specialize in the type of investment you intend on making. Furthermore, reputation and fee structures should also be taken into consideration; you should aim for one with low fees without hidden charges such as those offered through IRA Financial Group who offer more choice and flexibility.
Taxes
Custodians can assist clients with tax matters related to contributions and required minimum distributions. An IRA owner should expect their custodian to file tax returns, report taxable events and provide other relevant tax information.
Self-directed IRA custodians also assist clients in researching investment opportunities by verifying account statements’ prices and asset values as well as investigating any investment promoters or sponsors of investments that they sponsor, in addition to helping determine whether any transaction violates IRS rules.
Before choosing a custodian, individuals should first determine whether or not their chosen firm offers accounts that suit their specific needs. For instance, self-employed individuals might prefer a SEP IRA or solo 401(k), while small business owners could look into SIMPLE IRAs.
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