In the Individual Retirement Account (IRA) industry, a custodian is a financial institution that holds customers’ securities for safekeeping in order to minimize the risk of theft or loss. Custodians are legally responsible for any assets they hold, they can be banks, trust companies, credit unions, or brokerage firms.
A custodian’s role within an IRA includes:
- Holding the assets: The custodian keeps track of the assets within the IRA and takes responsibility for their safekeeping.
- Processing transactions: This includes buying and selling assets as instructed by the IRA owner, recording all transactions, and providing regular account statements.
- Ensuring compliance: The custodian ensures that the IRA is compliant with IRS regulations. This includes making sure contributions do not exceed the annual limit, required minimum distributions (RMDs) are taken when necessary, and prohibited transactions don’t occur.
- Providing tax documentation: The custodian is responsible for sending the IRA owner and the IRS the necessary tax documents each year.
In the context of a self-directed IRA, which allows a wider range of asset types including real estate, precious metals, and private business interests, the role of the custodian is particularly important. They ensure that these non-traditional assets are held safely and that all IRS regulations are being met.