What is an IRA Custodian?

Published by Thomas Herold in Investments, Laws & Regulations, Retirement

'IRA Custodian' is explained in detail and with examples in the Retirement edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

An IRA custodian is commonly represented by some form of a financial institution. This would likely be a brokerage or a bank. These Individual Retirement Accounts’ custodians have the job of protecting your assets in your IRA.

Per the rules of the Internal Revenue Service, such IRA custodians have to be financial institutions that are approved. People can not choose to perform the role of an IRA custodian. In order for institutions that are not financial in nature to perform the responsibilities of such IRA custodians, they have to receive a special approval issued to them by the Internal Revenue Service.

These IRA Custodians actually carry out the transactions that the clients request of them. They also file any and all reports, maintain all required records of anything done on the account as a custodian, and send out statements and notices for taxes, either of which may be mandated by law or the agreement for custodianship.

They sometimes will disburse the assets found in the IRA as per the wishes of the client, as well as file all necessary and relevant paper work with this action. One thing that IRA custodians do not have to do is to offer legal or investment advice to you, the IRA holder. This means that you have to provide the custodian of your IRA with clear and accurate instructions which follow the code established by the IRS.

IRA custodians can be responsible for overseeing a great range of investment securities and financial instruments. While IRS rules restrict IRA money being invested into collectibles like rare coins and artworks, or even life insurance, the custodian is able to work with various different investments like franchises, real estate, tax liens, and mortgages.

Still, a great number of financial institutions acting as IRA custodians will choose to restrict the kinds of investments that they will allow to be held in one of their IRA’s under custodianship. It is important for owners of IRA’s who wish to have their funds placed into investments that are not traditional for IRA’s, such as real estate or franchises, to seek out and choose an IRA custodian who will allow and work with these kinds of investments. This is the particular reason that a real estate management firm might choose to attain IRS certification in order to obtain the permission for overseeing real estate investment IRA’s.

Much of the time, IRA customers will just deposit their retirement money and assets into their account that the custodian holds and will supply them with overall guidelines for their investments. The IRS mandates fiduciary responsibility for IRA custodians. They have to place clients’ interests first. This translates to practical requirements, such as not being allowed to put the IRA money into investments and projects that come with a great amount of risk, unless they have the customer’s expressed consent.

IRA custodians are also involved with self directed IRA’s. Self directed IRA’s contain investments that are actively managed directly by the customer. The custodian only performs the actions that the customer requests in these cases.

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The term 'IRA Custodian' is included in the Retirement edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.