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INVESTING 101 EDUCATION

What Services Can You Expect from Your Self-Directed Retirement Account Custodian?

After you’ve found several self-directed retirement account custodians and chosen one that fits best with your needs, you’ll be able to commence your investment transactions. This is the most exciting part of having a self-directed retirement account because this is the time when you get to put your investment game plan into action. Now that you’re ready to start investing, exactly what services can you expect from your self-directed retirement account custodian?

The IRS defines a self-directed retirement account custodian as a “passive, non-discretionary” custodian. That is to say, the custodian doesn’t make investment decisions for you; the custodian is passive. The custodian is non-discretionary, meaning they don’t favor one type of investment over another. Of course in real life, your self-directed retirement account custodian may have favorite investments, but they aren’t permitted to attempt to sway you in one direction or another when it comes to your investment decisions. The custodian isn’t an investment advisor or a financial planner, and you shouldn’t expect them to act as one. However, self-directed retirement account custodians do charge fees, so what exactly are you paying them to do? What services does a custodian perform?

What a Custodian Doesn’t Do

First, you should understand what a custodian won’t do.

  • Serve as an investment advisor
  • Serve as a tax advisor
  • Offer legal advice
  • Endorse investments
  • Recommend investments
  • Recommend third-party investment advisors
  • Conduct investment valuations
  • Conduct due diligence

Now that you know what a custodian won’t do, you can better understand what your own responsibilities will be when it comes to self-directing your retirement account.

What Your Self-Directed Retirement Account Custodian Will Do

The self-directed retirement account custodian does a lot to earn their money. Following are some of the services you can expect.

  • Adheres to the rules and regulations of the IRS and U.S. Department of Labor regarding the IRA agreement
  • Processes paperwork to establish a self-directed status for an IRA
  • Adheres to federal anti-money laundering program and policies, thereby protecting you and your investments
  • Processes necessary documentation into and out of retirement plans
  • Keeps and maintains a record of contributions, rollovers, and transfers
  • Follows best practices to ensure privacy and security of your account and data against hackers
  • Executes your investment directives expeditiously
  • Maintains a record of supporting documentation such as agreements, private memorandums, certificates, promissory notes, and more, as required by the IRS
  • Receives and maintains a record of retirement account income and outgoings
  • Communicates and coordinates with third parties in order to expedite your investment directives
  • Provides tax reporting of income via 1099-Rs and 5498s as required by the IRS
  • Provides account statements to you, including a record of transactions, assets held and cash position

As you can see, there are a number of services that a self-directed retirement account custodian performs in order to ensure that your account is in compliance with IRS guidelines and more. While your self-directed retirement account custodian can’t give you investment advice, they do make it possible for you to carry out your own investment decisions without falling afoul of the IRS.

If you would like more information about working with a self-directed retirement account, or about private money lending opportunities at American Real Estate Investments, please feel free to contact us today. We look forward to helping to support your self-directed investment goals!