Custodians must ensure investors abide by IRS rules when investing, including being knowledgeable in regulations governing self-directed IRAs and warning clients against engaging in prohibited transactions.
Finding out which IRA custodian charges the lowest maintenance and trade commission fees before making your selection is essential. A quality custodian should have available specialists available online or over the telephone who can respond quickly to urgent queries and concerns.
Banks
IRAs offer tax-advantaged ways of saving for retirement. You can select your investments and make contributions. They’re flexible and portable – perfect for saving for a secure future!
Your options for opening an Individual Retirement Accounts (IRA) include traditional, Roth and Simple Employer Pension plans (SEP). With SEP plans, employers are allowed to contribute up to 25% of each employee’s salary as contributions towards an SEP plan while matching or non-elective contributions may also be made by them.
An IRA custodian must abide by IRS regulations, such as ensuring assets are accurately valued on an annual basis and prohibiting certain prohibited transactions that could reduce or reduce value and incur penalties. Banks serving as custodians for IRAs should review each provision of their account’s governing instrument to ensure they’re fulfilling their duties and responsibilities effectively as trustee.
Mutual Fund Companies
Custodians for self-directed IRAs may include banks, trust companies or any entity approved by the IRS as providing custodial services and holding assets, which charge fees for this service.
Account owners looking for FDIC-insured certificates of deposits or money market mutual funds will find bank investments an ideal choice, while individual retirement account (IRA) account holders seeking nonmarketable investments such as real estate may find other solutions more suitable than banks due to less flexibility regarding investment options and possibly higher fees than brokerage firms.
Custodians should employ knowledgeable specialists who can answer investors’ inquiries regarding alternative non-traditional investments, and maintain an open channel of communication for answering inquiries both online and over the phone. Furthermore, custodians must make it clear that it is the responsibility of investors themselves to vet or validate any investments.
Brokerage Firms
Custodians for Individual Retirement Accounts (IRAs) include traditional brokerage firms, mutual fund companies and trust companies; typically these will limit assets held within an IRA account to publicly traded investments like stocks, exchange-traded funds or bonds. There are a few nonbank custodians offering self-directed IRAs (SDIRAs); when selecting one it’s essential to conduct research using SEC, Financial Industry Regulatory Authority and state regulatory resources as well as consulting a licensed investment professional or attorney if possible.
An experienced SDIRA custodian will also ensure there are no unlawful transactions between your IRA and disqualified parties, such as you or anyone related to you owning real estate and renting it back out to them as rent.
Insurance Companies
Many traditional investment banks, brokerage firms and mutual fund companies will not permit you to use their services for a self-directed individual retirement account (SDIRA). However, independent custodians that specialize in this account type exist. It’s essential to find one with investments you want and fees you’re comfortable paying.
Your IRA should never engage in prohibited transactions that constitute self-dealing, such as purchasing property that will be used personally (like a vacation home), providing loans to disqualified people or buying raw land to hunt on with friends.
But, thanks to a Tax Court case called Swanson vs the Commissioner, certain IRA/LLC structures with limited personal benefit have now been legalized.
Robo-Advisors
Robo-advisors are digital financial advisors, making them ideal for investors who prefer managing their assets online. Robo-advisors typically charge lower fees than traditional advisors and offer low or no minimum investment account balance requirements (in some cases).
Most robo-advisors specialize in investing in exchange-traded funds to offer broad diversification that helps manage market risk, as well as automating portfolio rebalancing and tax-loss harvesting strategies to lower long-term capital gains taxes.
Along with fees structures, selecting an asset custodian that can hold nontraditional assets is of equal importance. While some SDIRA custodians only support traditional assets, others can hold nontraditional ones such as real estate and precious metals – and some even allow investors to purchase startup equity via crowdfunding platforms.
