An IRA custodian is a financial institution that stores an account’s assets for safekeeping and ensures that all IRS and government regulations are complied with at all times. The IRS requires that your IRA has a custodian bank. It is the responsibility of the custodian bank to execute the investment decisions made by the IRA owner and to ensure that all investment inquiries and account activities are carried out in accordance with regulatory requirements set by the IRA. An IRA custodian is a financial institution that is authorized by the IRS to provide custodial services and store assets on behalf of IRA owners.
According to IRS rules, an IRA must have a custodian bank, which can be a bank, a mutual fund company, or a brokerage firm. The IRA custodian is responsible for buying and selling investments on behalf of the IRA investor and ensuring that the IRA complies with IRS rules. The custodian bank charges a fee for offering custody services and managing investments on behalf of the investor. In other words, to set up an individual retirement account, you must open the IRA with a bank, financial institution, or authorized trust company such as the IRA Financial Trust.
In essence, the IRA custodian is responsible for maintaining and managing the IRA. The IRA custodian is responsible for compliance with all IRS reporting requirements relating to the IRA. This includes filing IRS Forms 5498 and 1099-R. 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.
The self-governing IRA custodian is not responsible for verifying the transaction or taking due care. That means looking for a custodian bank that is familiar with the consolidation rules and understands which types of IRAs cannot be combined. It’s important to note that IRA custodian restrictions are not the same as IRS restrictions on IRAs themselves or tax rules. In addition, a self-governing IRA custodian also pays all costs, such as property taxes on a real estate investment, in connection with the IRA transaction.
A self-directed IRA custodian should be fair and honest and ensure that your assets are safe and available when you need them. If you want to invest your IRA money in FDIC-insured securities or money market funds, you can use a bank as an IRA custodian. An IRA trustee, also known as a custodian, is the institution that manages your retirement account. If you already have a traditional IRA through a bank, trust, or credit union, you know what a custodian bank is.
The reason is that not all IRA custodian banks offer their customers alternative investments. However, for IRA investors who want to use their IRA to make alternative investments, such as real estate, the IRA custodian bank is not considered a trustee as it does not offer investment advice. An administrator is an intermediary between the IRA owner and a partner custodian bank that holds the IRA assets.
