Do You Need An IRA Custodian?

Every IRA is required to have a custodian. But not everyone needs or wants the services of a custodian. Most of the time investors are forced to use custodians due to the way traditional IRAs are set up.

A custodian is someone you need to finalize your deals. You might even have a custodian choose your investments for you. And if that's the case, you want to make sure you have a custodian who knows the prohibited transaction rules inside and out.

Keep in mind, not all IRA custodians are created equal and the IRS isn't lenient. If your custodian breaks the prohibited transaction rules with your IRA funds, you're the one they'll penalize, not your custodian.

The Self-Directed IRA Custodian

As I said earlier, not everyone wants or needs an IRA custodian. And that's where the self-directed IRA comes in. Investors with self-directed IRAs can take on the responsibilities of a custodian.

Yes, that's right, these investors volunteer to do more work. The benefits of doing your custodian's job include the following:

  • No more paying custodian fees
  • More ability to invest in anything you want
  • No more having to ask a custodian for permission
  • No more having to wait for a custodian to make an investment

But you can't just become your own IRA custodian right away. You'll need to know the IRS's prohibited transaction rules. Unless you want to pay a steep penalty tax.

When you're your own custodian, you can also get an attorney who's familiar with the IRS's rules to look over your deals for you. An attorney will be able to make sure your deals are in compliance with IRS rules and not disqualified transactions.

Always remember, with an IRA custodian you get what you pay for. Same thing with an attorney. If you plan on investing purely by yourself, make sure you know what you're getting yourself into. The IRS isn't known for being lenient.

If you need assistance managing your retirement account or reviewing your IRS compliance, schedule your consultation with our online tool.

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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