An IRA trustee, also known as a custodian, is the institution that manages your retirement account. By law, every individual retirement account must have a custodian or a trustee. Report a problem with this page. BOL Learning Connect offers more than 200 courses ON DEMAND or on CD ROM, from AML to Reg Z and all topics in between.
A bank is an option if you want to enjoy the FDIC-guaranteed security of certificates of deposit or money market funds from an IRA. However, in general, banks don't score particularly high in IRAs because most don't offer many investment options other than the above-mentioned vehicles. Those that offer broker-type services usually charge higher fees than brokerage firms. Robo-Advisors, a relatively new entity, are online investment platforms that provide automated advice on algorithm-based portfolio management.
Because these platforms are automated, meaning there is no human interaction, the costs, commissions, and other expenses that can affect the IRA rate of return are lower. However, in the financial services industry, a self-directed IRA usually means an IRA in which the custodian allows him to invest outside the more traditional world of stocks, bonds, mutual funds and exchange-traded funds (ETFs). Basically, an IRA depositary is a financial institution that keeps the investments in your account in a safe place and ensures that all government and IRS regulations are met at all times. It's important to note that the IRS only authorizes custodians to hold (or “guard”) the assets in their IRA account.
Unless the account owner prefers a robo-advisor, the IRA specialists at most custodians are experienced professionals and are available to account owners. When opening an IRA, it's important to ask the potential depositary several questions about the types of IRAs you can manage most effectively and the investments you're comfortable with. However, in financial services, an SDIRA is simply an IRA in which custodians allow the account owner discretionary control over investing in investment products other than traditional stocks, bonds, and mutual funds. It's important to note that some states don't allow administrators to manage IRA accounts on behalf of the custodian in this way.
All IRAs must be held by a custodial entity, such as a bank, credit union, trust company, or entity that is authorized and regulated by the IRS as a “non-bank custodian”. The only advantage of using an investment fund as the custodian of an IRA is that these companies allow account owners to invest in mutual funds or ETFs. The depositary of an IRA is a financial institution that holds investments in an account for safekeeping and ensures that all government and IRS regulations are met at all times. When choosing a self-directed IRA depositary, you should be comfortable with their industry experience, knowledge, and customer service.
If you choose the option of a non-self-directed IRA, there are several financial institutions available to act as custodians, once you have established your account with them. Managers do all the work for the custodians, and custodians have a responsibility to audit them. Marketable securities, such as mutual funds or stocks, require no effort to choose a custodian; however, IRAs that have alternative investments, such as private notes, precious metals or real estate, need a self-directed IRA custodian. Since alternative investments are more cumbersome for custodians, managers and facilitators have become a link between the IRA account holder and the depositary.