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What Does an IRA Custodian Do?

The IRS Requires All IRA Account Holders To Have A Qualified Custodian

What is an IRA custodian responsible for?

1. An IRA custodian serves as an asset holder for your IRA funds.

2. The custodian tracks all your IRA’s activities, such as contributions, 401k rollovers, transfers, distributions and any investments that you make through your IRA.

3. The custodian is required to report all your IRA transactions to the IRS.

4. An IRA custodian can either be an IRS-approved financial institution or a non-financial institution given specific IRS approval.

IRA Custodian Responsibilities

As an IRA custodian, Sunwest Trust does not provide any tax or legal advicenor do we determine the fair market value of your investment accounts.

Neither do we sell, advise on, or endorse any investment products or services.

Sunwest Trust facilitates merely the investment process at your specific direction and provides you with the IRS reporting necessary for your account.

In essence, we make sure that your self-directed IRA investments keep your IRA’s tax-deferred statusdistribute your money according to your directions as the account owner, and take care of all the administrative work. 

If you are ready to set up an account, then call us today. We look forward to assisting you. Review our transparent IRA fee schedule.

If you have questions about a particular investment or if you have tax or legal questions, we urge you to speak with a CPA or tax professional about your specific needs before self directing or investing with a retirement account.

How does a custodian look after my IRA contributions?

Whether a self-directed, Roth, SEP, SIMPLE or traditional IRA, it can only be funded with cash or cash equivalents.

Regardless of the sources of your IRA contributions, almost all of them can be made through your custodian of choice.

Roth IRA contributions are made with after-tax assets, and once in the Roth IRA, are usually tax-free. SEP IRA contributions are put into the employee’s name rather than the company’s pension fund. Money from a SIMPLE IRA can be rolled over into the rollover IRA rather than being contributed as cash. Your custodian will take care of the paperwork for all of these.

SEP IRA contributions are put into the employee’s name rather than the company’s pension fund. Money from a SIMPLE IRA can be rolled over into the rollover IRA rather than being contributed as cash. Your custodian will take care of the paperwork for all of these.

Money from a SIMPLE IRA can be rolled over into the rollover IRA rather than being contributed as cash. Your custodian will take care of the paperwork for all of these.

Will a custodian help me rollover my 401k to a self-directed IRA?

When you roll over money into an IRA, it’s considered a contribution to the account and will be reported on your 5498 form. You must complete a rollover within 60 days of receipt of the funds to avoid tax consequences. When you do a rollover, you should receive

When you initiate a rollover, you should receive a 1099 form from your previous custodian or plan administrator and a 5498 form from your new custodian.

How does a custodian help with IRA transfers?

Your custodian can transfer allowable assets or investments from one account to another through conduit IRAs.

How does a custodian oversee my IRA distributions?

The custodian must distribute your IRA’s assets according to your directions, but you are responsible for the taxes owed if the distribution falls outside the boundaries of a tax-deferred IRA account. All investments and activities are self directed by you, the IRA owner.

The Roth IRA custodian, though, may establish its own rules, and might only permit investments in traditional securities and banking products like certificates of deposit.  ~ wisegeek.com

As your custodian, we hold all documents that prove ownership of your IRA-bought assets while they are in your IRA’s possession.

Will a custodian help me diversify my self directed IRA?

You will find that custodians are usually financial institutions — banks, insurance agencies, brokerages mutual fund companies, credit unions – and each one will highlight the investments it sells. However, you can invest your IRA is anything that is allowable, and while the custodian must ensure that all of your transactions and investments are legitimate, it cannot recommend or favor your investment decisions. To achieve maximum diversity with your IRA, choose a custodian that does not limit the types of investments you can make.

Will a custodian limit my IRA investments?  -Alternative assets and prohibited transactions

The IRA rules for prohibited transactions for an IRA investor can be found in the Internal Revenue Code sections 219, 408 and 4975, and if you break them, your IRA could be disqualified. Section 408m of the IRS code says you cannot invest in “collectibles such as art, stamps, certain coins, alcoholic beverages, or antiques.” You also cannot invest in life insurance, nor can you live in a house you purchased with your IRA account.

Keep in mind that an IRA is merely a tax-advantaged container for investments. ~ Money Girl

With Sunwest Trust as custodian for your retirement account, there is a world of diverse assets in which you can invest. These include, but are not limited to real estate, mortgages, real estate contracts, publicly traded stocks, bonds, mutual funds, private limited partnerships, private stock offerings, private limited liability companies, and secured and unsecured notes.

What is my custodian responsible for reporting to the IRS?

The two forms that go out on from the custodian on an annual basis are the 1099 and 5498 forms. The 1099 form shows any distributions taken from your account. Rollovers from one IRA to another qualified retirement account are considered distributions, so they are also reported on the 1099 form. The 5498 shows any contributions made to the account throughout the year, as well as the fair market value of your account. The fair market value is determined by adding the values of all of your assets and totaling them up to get the value of your IRA account. It is the responsibility of the client to provide the custodian with an accurate, fair market value for his or her IRA account.

Will my custodian’s services be convenient?

Be sure to check the convenience of your custodian’s services compared to others –reputable customer service, and easy to navigate website, online and mobile access to your account, direct transfers, etc.

How much should an IRA custodian charge?

Check your custodian’s annual maintenance fees, mutual funds without sales fees (no-load mutual funds), management fees and trade commissions. Some charge a lot more than others, but offer the same services and investment options.

Self directed IRA custodians might charge higher prices because of the higher risk involved when investing in non-traditional assets. Watch this video to learn the difference in how IRA custodian fees are charged.  If you would like to check out Sunwest Trust’s fee schedule, then check out the link.

When and how do I change IRA custodians?

The choice to switch custodian is seen as a rollover from one financial institution to another.

A rollover is a tax-free distribution to you of cash or other assets from one retirement plan that you contribute to into another retirement plan. The contribution to the second retirement plan is called a “rollover contribution.” ~ Bankrate.com

Companies must have proof that they are approved by the IRS to be IRA custodians. Ask for the regulator’s contact information and check to make sure that you are dealing with a legitimate institution.

Recommended resources:

Bankrate – Moving an IRA to another bank

Memberclicks – Role of directed IRA custodian

The Street – How to choose an IRA custodian

Terry White

About Terry White

I started my business career after getting my degree in Accounting from the University of New Mexico in 1983. My first job was as a controller for a local title company, and in 1987 I started First Financial Escrow, Inc. Over the years I played a part in several startup companies including First Financial Equities, Inc., First Financial Trust, Inc., First Financial Marketing, Inc. and Asset Ventures, Inc. In 1997 First Financial Escrow, Inc. was able to purchase the escrow accounts from Sunwest Bank and changed its name to Sunwest Escrow. As the market changes, Sunwest has grown and changed along with it. Besides my wife, Sheila, we have three boys, two daughters-in-law, one grandson, another grandson on the way and a future daughter-in-law. Sunwest is my passion, and I enjoy coming to work every day to see what will happen next. I enjoy fly fishing, spending time in Colorado, biking and watching my boys play soccer.