What is the role of a Self Directed IRA Custodian?

Posted on: December 10, 2019

The IRS requires that all IRAs be held by a qualified third party such as a bank, trust company or other authorized custodian.

Accountholders can establish an IRA at a local bank or at a brokerage house, however they will then be limited to market-based products. Banks and brokerage houses generally do not custody alternative investments in IRAs due to the administrative burden involved.

Self Directed IRA custodians are the solution for people interested in investing their IRA into non-traditional assets. Self Directed IRA custodians specialize in custodying alternative assets and performing the labor-intensive duties associated with such transactions. 

Some of a Self Directed IRA custodian’s responsibilities include:

  • Maintaining IRA agreements and forms subject to the regulations of the IRS and the U.S. Department of Labor 
  • Accepting, documenting, and recording contributions, transfers and rollovers from other IRAs/retirement plans 
  • Executing accountowners’ investment instructions by sending funds from the IRA to the client selected investments  
  • Gathering, executing, and holding documents such as subscription agreements, operating agreements, offering documents, promissory notes, certificates, and other documents of ownership by the IRA
  • Receiving and recording income from the assets held in the IRA
  • Executing accountholders’ instructions to sell, withdraw from or liquidate investments held in the IRA
  • Facilitating, as directed by the accountholder, distributions from the IRA to the accountholder or transfers to other IRAs or retirement plans 
  • Performing tax reporting including IRS Forms 1099-R and 5498 
  • Providing statements to accountholders
  • Complying with all applicable State and/or Federal regulations governing IRA Custodians