Opening your account with a self-directed IRA custodian that you can trust is an essential step to saving for your retirement. You can open an account yourself. You don’t need a financial advisor for this. Even if you’re already investing, it’s never too late to transfer your money to a company that meets your needs.
Find a company that has been approved by the IRS as an IRA custodian and that allows its account holders to set up a self-governing IRA. Although you make investment decisions with a self-directed IRA, IRS rules still require that your account be managed by an approved custodian bank. The custodian of your new, self-governing IRA requires you to submit a form specifying your choice of IRA and, in particular, that you will not rely on investment advice from the custodian bank. An individual retirement account (IRA) offers investors certain retirement savings tax benefits.
Common examples of IRAs include the traditional IRA, the Roth IRA, the Simplified Employee Pension (SEP) IRA, and the Savings Incentive Match Plan for Employees (SIMPLE) IRA. All IRA accounts are managed by custodian banks for investors. Custodian managers may include banks, trust companies, or any other entity approved by the Internal Revenue Service (IRS) as an IRA custodian. Most IRA custodian banks limit IRA account holdings to company-approved stocks, bonds, mutual funds, and CDs.
David Moore from IRA Advantage and Tom Moore from Equity Advantage explore the misconceptions about self-directed IRAs and discuss whether a custodian is necessary. There are a number of ways fraudsters can try to use self-directed IRAs to defraud unsuspecting investors. Tell your self-governing IRA’s new custodian how to invest the funds transferred to your new account. When you open an IRA account, you’ll need to find an IRS-approved institution that acts as the custodian for the account.
You can’t go into one of the big stores like Edward Jones or Charles Schwab and have a really self-directed IRA. However, if you set up a self-managed IRA with a custodian that specializes in self-directed IRAs, you can invest your money in any eligible investment, including nontraditional investments such as real estate. Fraudsters are more likely to exploit self-directed IRAs, as the custodian managers or trustees of these accounts may only offer limited protection. The IRS prohibits transactions between an IRA account and the account owner, their beneficiary, or other “disqualified” individuals, such as certain family members.
If you opt for a direct transfer, you don’t have to worry about the 60-day deadline, as your custodian bank transfers the money directly to your new custodian bank. With a self-managed IRA, there is also an external custodian bank, but this company only serves as an intermediary between you and the investment. The custodian bank stores and manages the assets and takes care of the bookkeeping, but does not generally assess the value or legitimacy of the investment. Like traditional IRAs, self-directed IRAs are subject to rules, but not everyone defines a self-directed IRA in the same way.
The custodian bank will most likely provide you with forms that include your investment decisions and instructions. If you opt for a rollover, your custodian bank will give you a check for the balance, which must be transferred to your new custodian bank within 60 days. For more information on IRAs, see the Internal Revenue Service IRA online resource guide.
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