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. Pursuant to section 408 of the Internal Revenue Code (IRC), an IRA can only be established and managed by a bank, financial institution, or trust company authorized in accordance with state law. An IRA trustee, also known as a custodian, is the institution that manages your retirement account.
By law, every individual retirement account must have a custodian or a trustee. An IRA is a custodial account and requires a custodian to maintain their tax-advantaged status. The custodian ensures that all investments are approved by the internal revenue service and also completes all required reports and documentation for the tax authority. The custodian acts as the basic account supervisor and is also responsible for functions such as sending investment performance statements and buying and selling investments for the IRA.
A custodial IRA is an individual retirement account that a custodian (usually a parent) has for a child with earned income. Once the custodial IRA is opened, the custodian manages all the assets until the child turns 18 (or 21 in some states). All of the funds in the account belong to the child, allowing him to start saving money right from the start. In addition to taking advantage of the benefits of combined growth, your child may be able to use the funds for future expenses, such as college tuition, or even to buy a first home.
You can open a Roth IRA with custody or a traditional IRA with custody, and the appropriate account rules and benefits will apply. An Individual Retirement Account (IRA) offers investors certain tax benefits for retirement savings. Some common examples of IRAs are the traditional IRA, the Roth IRA, the simplified employee IRA (SEP) and the employee savings incentive compensation plan IRA (SIMPLE). All IRAs are run by custodians for investors.
Custodians may include banks, trust companies, or any other entity approved by the Internal Revenue Service (IRS) to act as custodians of an IRA. Most IRA custodians limit IRA account holders to stocks, bonds, mutual funds, and certificates of deposit approved by the company. It's important to note that some states don't allow administrators to manage IRA accounts on behalf of the custodian in this way. Throughout this document, where the IRA trustee is mentioned, it will also include an IRA custodian or, if appropriate, an issuer of the IRA annuity contract.
Basically, an IRA depositary is a financial institution that keeps the investments in your account in a safe place and ensures that all government and IRS regulations are met at all times. The same contribution and distribution rules that apply to traditional and Roth IRAs also apply to custodial IRAs. The depositary of the self-directed IRA is not responsible for reviewing the transaction or performing any due diligence. The depositary of a self-directed IRA must be fair and honest and ensure that their assets are safe and available when you need them.
As more self-directed IRA providers emerge on the market, it's more important to research potential providers to ensure that you have the utmost confidence in managing your account. You have many different types of investment options for an IRA, including investments that are not offered by financial institutions or mutual fund companies. All contributions made to the IRA with custody are considered irrevocable transfers for the benefit of the child. In fact, almost all banks and financial institutions, which are IRA custodians, do not allow their customers to use IRA funds to make investments in alternative assets for the simple reason that they do not make money with those investments.
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. A bank is an option if you want to enjoy the FDIC-guaranteed security of certificates of deposit or money market funds within an IRA. Since alternative investments are more cumbersome for custodians, managers and facilitators have become a link between the IRA account holder and the depositary. 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.