Entrust Learning Center > Retirement Plans > May IRA Insights: Why Must IRAs Have A Custodian?

May IRA Insights: Why Must IRAs Have A Custodian?

The Employment Retirement Income Security Act (ERISA) was signed into law by President Gerald Ford over 33 years ago and the Individual Retirement Account developed soon after.

By: Glen Martin

IRA Insights

By: Glen Martin

The Employment Retirement Income Security Act (ERISA) was signed into law by President Gerald Ford over 33 years ago and the Individual Retirement Account developed soon after. IRAs were established to give workers a way to save for retirement, especially those not covered by an employer's retirement plan. The IRA also provided a means for workers to preserve their retirement accounts when they changed jobs. It gave them the ability to rollover their funds into their own IRA accounts without incurring any tax.

Since Congress was deferring tax on these retirement funds, Congress wanted to make sure these accounts would be used solely for retirement purposes and not for the current benefit of the account holder. Therefore, all IRA funds must be held in a custodial account. The custodian or trustee must be a bank or other institution as defined in Sec. 408(a) (2) and 408(n) of the Internal Revenue Code. The purpose of the custodian is to have an independent third-party holding the IRA funds for the benefit of the account holder. This preserves the tax-deferred treatment of the funds for the account holder.

Custodians vary greatly in the type of assets they hold in their custodial accounts. Most banks, mutual funds and brokerage firms only allow stock, bonds, and mutual funds to be held in these accounts. Your local Entrust office allows account holders to invest their funds in alternative investments like real estate, notes (secured & non-secured), oil and gas, private placements, private stock, limited partnerships and limited liability companies.

Glen Martin is a Principal of IRA Plus Southwest, LLC. Serving North Texas, East Texas and Oklahoma. He can be reached at (800)473-1977.

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