Custodians typically consist of banks, financial institutions or trust companies and limit assets held within an IRA to low-risk investments such as mutual funds, stocks and bonds.
However, some custodians offer alternative and often riskier investments through self-directed IRAs such as private placement securities or real estate investments. To protect yourself from fraudulent schemes before investing, check the IRS list of approved nonbank trustees and custodians before investing.
What is a Custodian?
Custodians serve as gatekeepers of retirement assets, ensuring compliance with IRS regulations. They track money coming in and out of your account, perform regular financial valuations and ensure all investments remain tax-advantaged.
Banks, brokerage firms and mutual fund companies typically serve as custodians of traditional and Roth IRAs, typically offering only marketable investments such as mutual funds, stocks and bonds as options.
To avoid conflicts of interest, legitimate IRA custodians typically do not actively solicit investment opportunities or advise on the purchase or sale of assets held within an IRA, nor make recommendations regarding the tax status of investments held within it. They do however need to remain aware of potential prohibited transactions or violations that might compromise tax-advantaged status – in such instances a custodian may suggest you consult legal, tax, and investment experts for guidance.
What is a Trustee?
A trustee is an individual or firm who manages property for someone else’s benefit, such as managing investments, administering required minimum distributions, paying bills and performing other duties. Trustee must adhere to fiduciary standards of care so as to maximize returns for beneficiaries of their care.
Individual trustees tend to be family members or trusted friends of trust beneficiaries who can add an intimate personal touch when helping navigate their financial situations. Unfortunately, family members may become subject to conflicts of interest as well as lacking the experience needed for making prudent decisions and handling complex legal or financial issues effectively.
Trust companies or independent trustees offer another alternative. These businesses specialize in overseeing trust funds and may feature teams of investment advisors, accountants and administrators to handle this responsibility for you. Typically they charge an AUM fee but may also offer more cost-efficient solutions for complex or specialized trusts.
What is a Fiduciary?
Fiduciary duty is an integral legal obligation that applies to anyone managing someone else’s funds or property for compensation, such as brokers, investment advisors, insurance agents or anyone who provides professional advice in exchange for payment. Fiduciaries include brokers, investment advisers, insurance agents or any person or organization offering professional advice in exchange for payment.
When it comes to IRAs, fiduciary duty of care has become more stringent under new Department of Labor rules. Fiduciary financial advisors are now better able to offer retirement savers higher levels of service while avoiding conflicts of interest.
Beneficiary designations in an IRA allow you to determine who will inherit your assets upon your death. You can leave them to a spouse, children, charities or transfer them directly into a trust.
What is a Nonbank Custodian?
Nonbank custodians work with an IRA to enable alternative investments such as real estate or precious metals. These companies must undergo a stringent application process and comply with IRS regulations; additionally, many offer services across a large area and educational resources for clients.
Use an IRA custodian with experience in your investment field for maximum benefit. They should know all the rules and regulations surrounding your particular asset class and be able to quickly answer your queries about compliance with laws pertaining to investments. Doing this will allow you to avoid prohibited transactions and remain compliant.
The IRS website publishes a list of nonbank custodians approved by the Department of the Treasury. Equity Trust, part of IRA Financial Group’s IRA custodial services, is included on this list as it is registered as a trust company in South Dakota and subject to state regulation – providing an added level of supervision over conventional banks or financial institutions.
