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. An IRA trustee, also called a custodian, is the institution that manages your IRA. By law, every qualified retirement plan must have a custodian or trustee. A trustee can be a bank, credit union, financial institution, or trust company, such as IRA Financial Trust.
IRS regulations require a qualified trustee or custodian to own IRA assets on behalf of the IRA owner. A self-directed IRA depositary, also called a passive custodian, allows IRA holders to make non-traditional investments (i.e., real estate), but generally does not offer investment advice or act as a fiduciary. In short, in accordance with section 408 of the Internal Revenue Code, a bank, financial institution, or authorized trust company can establish and administer an IRA. By law, every IRA must have a custodian or trustee.
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. To this end, the IRA depositary has the responsibility to comply with all IRS reporting requirements with respect to the IRA, such as filing IRS Forms 5498 and 1099-R. However, in general, banks don't score particularly high in IRAs because most don't offer many investment options other than the above-mentioned vehicles.
A self-directed IRA is an IRA in which you choose funding methods and instruments and allows you to expand investment options. With both traditional and Roth IRAs, you can choose to have the account managed (i.e., the depositary makes most investment decisions) or to manage it yourself. An IRA trustee is an entity that oversees the administration of an individual retirement account, a type of retirement plan that is available in the United States. The IRA depositary has the right to decide what types of investments approved by the IRS will allow their IRA clients to invest in.
This means looking for a custodian who knows the rules regarding consolidation and understands what types of IRAs cannot be combined. It's important to note that IRA custody restrictions are not the same as those of the IRS on IRAs themselves or rules based on tax legislation. 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 followed at all times. On the other hand, a self-directed IRA depositary, also called a passive custodian, allows IRA holders to make non-traditional investments (that is, all custodians of a self-directed IRA are prohibited by law from offering investment advice or recommendations to their clients).
Contact IRA Financial at 1-800-472-0646 or complete the form to learn more about opening a self-managed retirement account. When opening a new individual retirement account, it's a good idea to research the IRA trustee who will participate in the account. If you already have several IRAs, some experts advise you to consolidate them into a single account and deposit if possible.