In a single-employer plan, the employer is the plan sponsor, who sets up a separate trust to store plan assets. The trust is a separate and independent entity from the employer. Report a problem with this page A trustee manages a trust, while a custodian bank manages the assets of a financial institution.
According to Section 408 of the Internal Revenue Code (IRC), an IRA can only be established and managed by a bank, financial institution, or authorized trust company under state law. An IRA trustee, also known as a custodian, is the institution that manages your retirement account. By law, each individual retirement account must have either a custodian bank or a trustee. There is some confusion about the difference between an IRA trustee and an IRA custodian bank.
While many people use the two terms interchangeably, the trustee is able to offer additional financial options to anyone who wants to open an IRA. A trustee, for example, has the option to fully manage the investment of funds within managed IRAs and to offer account holders a wider range of financial advice. An IRA custodian bank may not offer these additional services and support. 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-governing IRA custodian earns its fees by safekeeping and managing alternative investments approved by the IRS and owned by an IRA or other retirement plan. The IRA custodian is responsible for compliance with all IRS reporting requirements relating to the IRA. For example, before IRA financial partner Adam Bergman founded the IRA Financial Trust Company, IRA Financial Group acted as administrator and had connections to various custody options from which customers could choose. When you manage an IRA yourself with a custodian like Quest, you can rest assured that your account has an added level of security and that those IRAs are protected by many regulations.
On the other hand, a self-directed IRA custodian (also known as a passive custodian) allows IRA holders to make unusual investments and never offers investment advice or sells investment products. The primary responsibility of the self-governing IRA custodian is to facilitate transactions on the instructions of the IRA holder and to take over the safekeeping of alternative investments owned by the IRA. You must open a self-directed IRA with a special custodian bank called a passive custodian bank or self-directed IRA custodian, which allows alternative investments such as real estate. In fact, almost all banks and financial institutions that are IRA custodians do not allow their customers to use IRA money for alternative investments for the simple reason that they do not make money from these investments.
If you already have a traditional IRA through a bank, trust, or credit union, you know what a custodian bank is. 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. 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.