Since the Rules and Regulations governing a self directed 401K plan requires owners for reports and disclosures, managing the same becomes daunting and complicated.An IRA custodian simplifies management of fund. The manager of the IRA assets is the trustee or the IRA custodian in behalf of the IRA owner. However, The IRA custodian is not the same as an “administrator”, a person or a firm handling reports and documents but is not directly responsible for the safekeeping of the assets being administered. The IRA custodian cannot be considered as the “administrator” of the funds, an individual who prepares required reports and documents but is not liable for the handling and care of the assets being administered. The qualified IRA custodian should not be the IRA owner’s fiduciary and family members, such as the spouse, ancestor, lineal descendant (e.g. children), and any spouse of a lineal descendant.
The primary function of the IRA custodian is to manage and care the assets, its records, investments and all transaction records relating to them. Issuing of statements needed by clients and giving full information on the rules and regulations of IRA asset management are the responsibility of the IRA custodian making sure that the owners have understood them. Mutual funds, bonds and blue chip stocks are investments in which the IRA custodian can cherry pick and offers it to the IRA owner. It is also permissible for the IRA custodian to offer other types of investments within the range permitted by the investment board and as regulated and limited by the IRS on the types of assets that may be invested in and which transactions can be carried out.
Tangible personal properties like collectibles, antiques, gems, coins artworks, and alcoholic beverages as form of investments are not permissible for IRA custodians to invest in. Furthermore, IRA custodians are not permitted to do the following transactions: improper use of the value in the account or annuity by the account owner, the IRA owner relatives or any disqualified persons. The latter thwarts self-dealing. The following are other disqualified persons: Service providers of the IRA (e.g. CPA, financial planner), a corporation or any individual of which 50% is owned directly or indirectly by a fiduciary or service provider.
Borrow money from it; purchase to add to the asset; receiving unreasonable compensation for managing the asset; to secure for a loan; and purchase of a property for personal use with the assets are some prohibited acts which IRA custodians are not allowed to do with the asset funds. As mandated by law, the following acts are prohibited for IRA custodian to commit: Acquisition of any asset whose main recipient is the IRA owner; pledging a kinsfolk’s new house purchased by a family member; mortgaging a second time an acquisition of house of one of the owner’s children.
Real estate, tax liens, franchises, mortgages, stocks are some of the additional permitted transactions the IRA custodian can undertake. Real Estate can be in the form of farmlands, raw land, new construction and renovations, passive rental income, residential and commercial properties located here and abroad. Business dealings may be in the form of joint undertakings, private equities and partnerships. US Treasury Bills, royalty rights, hedge funds, commercial papers, commodities and foreign stocks are examples of alternative investments.
With the strict implementation of rules and regulations and submission of reportorial requirements governing the Self Directed 401K Plan, we can now say that it would just be simpler to hire an IRA custodian.
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