They make money when you invest in their financial products. With alternative investments, you're basically withdrawing your money from the financial institution to invest it in assets that don't make IRA custodians make money. The IRS requires that your IRA have a custodian. It is the depositary's responsibility to execute investment decisions made by the owner of the IRA and to ensure that all investment requests and account activities are carried out in accordance with regulatory requirements established by the IRA.
A self-directed IRA depositary does not sell investments and therefore imposes no limitations on investment decisions other than those imposed by the IRS. 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. The following bullet points and FAQs are designed to help you understand the role of the depositary of a targeted IRA. Self-employed custodians have agreements with their clients that require customers to provide supporting documentation for the investments included in their plan.
With a Roth IRA, there is no tax relief on sums contributed, but you don't owe taxes when you withdraw money in retirement. Once the right IRA and investments are chosen, the main factors that will distinguish one custodian from another are investment options, fees, and customer service. Setting up and maintaining your self-directed IRA with a new custodian can be complex and time consuming if you don't have access to a responsive customer service team. Once you've done the due diligence with your custodian and with your investments, you're ready to implement your alternative asset retirement strategy.
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. In his role as a passive depositary, the depositary of a targeted IRA does not solicit investments and does not provide advice or recommendations to clients regarding investments acquired or held by IRAs. In general, both brokerage firms and insurance companies can be a good choice as IRA custodians when the account owner wants to actively invest in individual stocks, bonds, ETFs, annuities, and mutual funds. Managing IRAs can be complex and frustrating, and there's nothing worse than dealing with poor customer service.
It's important to note that the IRS only authorizes custodians to hold (or “guard”) the assets in their IRA account. 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.