All IRAs must be held by a custodial entity, such as a bank, credit union, trust company, or entity that is authorized and regulated by the IRS as a “non-bank custodian.” A custodial IRA is an individual retirement account that a custodian (usually a parent) has for a child with earned income. Once the custodial IRA is opened, the custodian manages all the assets until the child turns 18 (or 21 in some states). All of the funds in the account belong to the child, allowing them to start saving money right from the start. In addition to taking advantage of the benefits of combined growth, your child may be able to use the funds for future expenses, such as college tuition or even to buy a first home.
You can open a Roth IRA with custody or a traditional IRA with custody, and the appropriate account rules and benefits will apply. An IRA custodian is a financial institution authorized by the IRS to provide custody services and hold assets on behalf of IRA owners. According to IRS regulations, an IRA must have a custodian, who can be a bank, a mutual fund company, or a brokerage firm. The IRA depositary is responsible for buying and selling investments on behalf of the investor in an IRA and for ensuring that the IRA complies with IRS regulations.
The custodian charges a fee for providing escrow services and managing investments on behalf of the investor. 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. Unless the account owner prefers a robo-advisor, the IRA specialists at most custodians are experienced professionals and are available to account owners.
An administrator is a company or person that performs the work that a custodian would normally do if the custodian offered the possibility of holding private investments in IRAs. If you want to invest your IRA money in FDIC-insured securities or money market funds, you can use a bank as an IRA depositary. An IRA depositary is the financial institution that manages your IRA funds and makes sure that your investments in an IRA are approved by the IRS. If you already have several IRAs, some experts advise you to consolidate them into a single account and deposit if possible.
Custodians are not difficult to find, but in order to choose the best and most correct one, the owner must decide what kind of investments will be made in the account. Managers and facilitators act as intermediaries between you and an associate custodian who actually owns the assets. The two main types of IRAs created by individual investors are the traditional IRA and the Roth IRA. Once the right IRA and investments are chosen, the main factors that will distinguish one custodian from another are investment options, fees, and customer service.
Once you've made those decisions, it's time to consider custodians and the factors that distinguish them from one another, such as investment options, fees, and customer service. In general, both brokerage firms and insurance companies can be a good choice as IRA custodians when the account owner wants to actively invest in individual stocks, bonds, ETFs, annuities, and mutual funds.