Why Do I Need a Custodian for a Self-Directed IRA?

retirement-plan-with-pen-and-glassesA self-directed IRA is one in which the account owner exerts full control over his or her investment choices. Unlike traditional IRAs that are limited to investments in securities such as stocks, bonds, and mutual funds, self-directed IRAs allow the owner to purchase gold, silver, real estate, and other alternative assets.

However, self-directed IRAs also require something ordinary IRAs and pension accounts do not: an IRS-approved custodian. Why is this the case and how do you choose one? Read on to learn more.

The role of a custodian

The main role of a custodian for self-directed IRAs is to help ensure the account owner complies with all tax rules and regulations, including what kind of assets are allowed to be held in the IRA. The IRS simply does not have the manpower or capacity to actively monitor all self-directed IRAs, so they have delegated some of those responsibilities to approved third-party custodians. Generally speaking, custodians:

  • Are licensed financial institutions or brokerage firms, never individuals
  • Assist in purchasing allowable assets
  • Make distributions
  • Act as fiduciaries, but not legal or financial advisers
  • Keep tax records for self-directed IRAs and periodically report to the IRS as required by law

Choosing a custodian

Since penalties and fees for noncompliance or willful violation of IRS tax rules can be severe, it’s important to choose an experienced custodian that knows the ins and outs of administering self-directed IRAs and has a good reputation within the industry. In addition, some features to look for prior to selecting a particular firm to serve as custodian include:

  • Low maintenance fees or charges
  • Reliable and readily available agents who can provide thorough and accurate answers to all of your questions
  • The knowledge and ability to consolidate all of your retirement accounts or roll over eligible pension plans into precious metals IRAs
  • An easy-to-navigate website that enables you to conduct transactions and monitor your accounts 24/7
  • A variety of account plans that allow you to invest in the kinds of precious metals, public LPs, LLCs, real estate, mortgages, trust deeds, and other alternative assets permissible by law

Now that you understand why self-directed IRAs require an approved custodian and now that you know how to identify a good custodian, we encourage you to check out AmericanBullion.com where you can learn more about gold IRAs or chat with one of our precious metals experts about opening an account.

Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.