5 things you should know about an IRA custodian

Estimated reading time: 2 minutes(Last Updated On: August 13, 2019)

When setting up an IRA, whether it’s a traditional IRA or another type like a Roth IRA, you will need to have a custodian. The custodian acts as an asset holder for your IRA funds. There are a variety of organizations that can serve as IRA custodians, but investment groups and banks are some of the most common. The custodian is typically also in charge of managing your IRA investments, unless you have a fully self-directed IRA. Here are 5 key facts to know about IRA custodians.

They are required to report your IRA transactions to the IRS

To ensure that account holders pay their taxes accordingly, custodians are required to report transactions to the IRS. This is why it’s so important to follow IRA tax requirements, and to take tax requirements into consideration when choosing the type of account you want.

IRA custodians and administrators are different

If you are looking into self-directed IRAs, you may see the term ‘IRA administrator’. While administrators can manage certain aspects of your IRA account, they are not fully licensed custodians. If your IRA is managed by an administrator, they must have a relationship with a licensed custodian in order for the account to be legal.

Custodians are not responsible for investment gains

A common misconception is that IRA custodians are required to produce financial gains on your investments. While IRA custodians are required to act in your best interests, they are not required to actually make you money. It’s always important to be aware of the risks when investing.

Custodians have a contribution limit

The IRS has limits in place regarding how much you can contribute to an IRA per year. IRA custodians are required to enforce these limits or they could be disqualified.

Custodians can’t buy or sell without your permission

Even in a traditional IRA, where the custodian manages your funds for you, they still need your permission to invest. Be cautious when giving investing permission to your custodian – you should always be aware of where your money is going.

Quest Trust Company is an IRA custodian that offers truly self-directed IRAs. We give you more control over your investments, with fast processing and minimal fees. Contact a Quest IRA specialist today to learn more about our investment options.

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