Choosing IRA custodian is crucial for maintaining the tax-free status of your IRA account. The type of custodian you choose will depend on the IRA account you choose to invest in. Traditional IRA accounts may not need an extra effort for choosing IRA custodian but if you plan to explore non-traditional investments then you need a self-directed IRA custodian to diversify your financial portfolio.
Why You Need a Qualified IRA Custodian?
With an IRA account, your investment options extend beyond mutual funds and ETFs to include precious metals and real estate. But to invest in non-traditional assets with an IRA account, you need a licensed self-directed IRA custodian. A passive IRA custodian is a firm that allows you to choose your own investment vehicles.
You give the IRA custodian your investment and then the custodian invests your money in any of the allowable assets chosen by you. The custodian is then responsible for ensuring that your account adheres to the IRS guidelines and also issues all the required tax forms and statements.
What is an IRA Custodian Responsible For?
The IRA custodian serves as your asset manager and is responsible for monitoring your IRA funds. From tracking your IRA contributions and 401(k) rollovers to transfers and distributions, every activity made through your IRA is monitored by your IRA custodian. The IRA custodian is also responsible for reporting every IRA transaction to the IRS.
Tips for Choosing IRA custodian
Your chosen IRA custodian can either be an IRS-approved, non-financial firm or a financial institution given IRS approval. And if you are choosing a bank for setting up your IRA account, then the bank becomes your IRA custodian. The same stands true if you invest in a certain mutual fund family. Using such IRA custodians will save you a lot of money as their fees are relatively lower in comparison to institutional accounts.
But, if you are choosing IRA custodian for a self-directed account, then make sure you choose an IRA custodian keeping the following 5 factors in mind.
A Wide Range of Investment Options
The bigger the assortment of alternate investments, the more options you have to diversify your funds. So if you want to invest beyond stocks, bonds, ETFs and mutual funds, then your chosen IRA custodian should be able to help you look for non-traditional options like real estate and privately held companies.
Low Maintenance Fees
Fees come in various forms – annual maintenance fees, commissions for making trade, loads for mutual funds and the like. So, if your chosen IRA custodian charges a certain type of fee, check if it is uniform across custodians because these fees are not a “given”. And if you are investing in mutual funds, make sure your custodian offers different types of no-load mutual funds.
Knowledgeable About the Rules
If you have multiple IRA accounts then according to experts, you should consolidate your accounts into one fund and delegate a single IRA custodian. Your IRA custodian should be knowledgeable about the rules of the IRS, the rules based in tax law, and also know which types of IRA accounts cannot be consolidated.
No Restrictions on Investments
Certain IRA custodians limit your investment options because the nature of their charter is restricted. These limitations may not be the same as the restrictions imposed by the IRS. So, make sure you choose an IRA custodian with no restrictions.
When you are opening an IRA account, make sure your choice is based on the type of account you prefer – Traditional or Roth. If you want to diversify your portfolio then a self-directed IRA will give you the freedom to take check book control of your finances.
Unless you are fine working with a robot advisor, easy access to a knowledgeable and experienced financial advisor is very important. When you are managing a self-directed IRA, a vague or incomplete answer is the last thing you’d want to deal with.
Self-Directed Retirement Plans LLC offers flexible retirement plans with multiple investment options that include asset protection, prompt support, limited custodial fees and complete check book control. Call (866) 639-0066 today to learn about alternate investment vehicles that will quadruple your retirement savings.
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning company based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last ten years has turned his focus to self-directed ira accounts and alternative investments. If you need help and guidance with traditional or alternative investments, call him today (866) 639-0066.