All IRAs require a custodian bank All IRAs must be managed by a custodian such as a bank, credit union, trust company, or a company licensed and regulated by the IRS as a “non-bank custodian”. Custodian banks are critical in any individual retirement account (IRA) agreement to maintain a tax-deferred or tax-exempt status. Custodian banks, also known as trustees, differ depending on the type of IRA. Marketable securities such as investment funds or stocks require no effort when choosing a custodian bank. However, IRAs that hold alternative investments such as private bonds, precious metals, or real estate require a self-managed IRA custodian bank.
An IRA custodian is a financial institution that stores an account’s assets for safekeeping and ensures that all IRS and government regulations are met at all times. An IRA custodian is a financial institution that is authorized by the IRS to provide custodial services and hold 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 custodial services and managing investments on behalf of the investor. An IRA custodian such as Pacific Premier Trust is a highly regulated bank, credit union, or bank that is not a custodian bank that may store assets in an IRA. Both state and federal governments oversee custodian managers, and there are strict policies, procedures, and internal controls. Unless the account holder prefers a robo-advisor, IRA specialists from most custodian banks are knowledgeable professionals available to account holders.
If you have a self-managed IRA, look for custodian banks with alternative, unconventional investments, such as real estate and private companies, to increase potential returns. Similar to an administrator, a facilitator also acts as an intermediary between the IRA owner and the custodian bank. Regardless of the type of IRA you have, however, the IRS requires that you have an IRA custodian that manages your IRA investments and provides custodial services for your IRA assets. The other issue with these accounts, if you have your IRA with a self-managed custodian versus a “traditional custodian,” it’s an IRA account, whether it’s here or there, and you still have the same contribution limits for your traditional accounts, SEP accounts, simple accounts, and Roth accounts.
Custodian banks generally avoid making private investments in IRAs because it means too much paperwork for 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. A managed IRA custodian acts as a passive, non-discretionary custodian bank for customer-oriented, also known as self-directed, individual retirement accounts (“IRAs”), as IRA is defined in Section 408 of the Internal Revenue Code, as amended from time to time. If you choose an insurance company as your IRA custodian, you can invest your IRA savings in premium annuities.
However, true custodian banks hold and manage assets in IRA accounts but do not offer investment advice or recommend investments. Once the right IRA and investments have been selected, the most important factors that differentiate one custodian from another include investment options, fees, and customer service. As mentioned earlier, custodian managers are companies that have been authorized by the IRS to provide custodial services and hold assets on behalf of an IRA.