A custodian is required for all IRAs 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”. Custodians are essential in any individual retirement account (IRA) arrangement to maintain a tax-deferred or tax-exempt status. Custodians, also called trustees, vary by type of IRA. 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.
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. An IRA depositary is a financial institution authorized by the IRS to provide custody services and hold assets on behalf of IRA owners. According to IRS rules, an IRA must have a custodian, who can be a bank, a mutual fund company, or a brokerage firm. The IRA depositary is responsible for buying and selling investments on behalf of the investor in an IRA and for ensuring that the IRA complies with IRS regulations.
The custodian charges a fee for providing escrow services and managing investments on behalf of the investor. An IRA depositary, such as Pacific Premier Trust, is a highly regulated bank, credit union, or non-custodial bank that is allowed to guard the assets of an IRA. Both the state and federal governments supervise custodians, and there are strict internal policies, procedures and controls. The other problem with these accounts when you have your IRA in a self-directed depositary than in a “traditional custodian” is that it is an IRA account, either here or there, and you still have the same contribution limits for your traditional accounts, SEP accounts, simple accounts and Roth accounts.
Since these platforms do not involve human interaction, fees and other expenses that usually reduce the return on investments in IRA accounts are usually non-existent. Robo-advisors are automated investment platforms based on algorithms that IRA investors can use to manage their investments. Traditional IRAs allow account holders to contribute pre-tax income to their IRA, and investment growth tax is deferred until retirement when they retire. These scammers claim to investigate and approve underlying investments, but as the SEC points out, IRA custodians don't assess the quality of investments in self-directed IRA.
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. A self-directed IRA is just a term that describes an account that allows you to do what you want to do, but, again, this term is not legally defined and its meaning is not universally accepted. Both managers and facilitators can act as intermediaries between the owner of the IRA account and the associate custodian who owns the assets. A diversified investment portfolio with the right selection of stocks, bonds, mutual funds and individual ETFs can help reduce risk in an IRA or any account.
For SDIRA investors, adding alternative investment opportunities, including real estate and private companies, has the potential to increase returns, since these are riskier assets. An administrator is a company or person that performs the work that a custodian would normally do if the custodian offered the possibility of holding private investments in IRA accounts. Roth IRAs are retirement accounts in which the owner pays taxes on the money deposited in the account (after-tax contributions) and, therefore, all withdrawals are tax-exempt. However, true custodians maintain and manage assets in IRA accounts, but they don't offer investment advice or recommend investments.