Investing for retirement is a long process that requires you to make many important decisions that could determine your financial stability during retirement. Interestingly, many people are getting increasingly tired of managed retirement accounts because the returns are often meager, the fund managers take a big cut, and the rest of the money left for the investors won’t keep up with inflation. Now, many investors are choosing self-directed IRAs so that they can choose investments with potential for bigger returns such as Bitcoin.
However, you can’t go it alone with a self-directed IRA and the IRS demands that you keep your retirement funds with a custodian. IRS Publication 590 says “An individual retirement account is a trust or custodial account set up in the United States for the exclusive benefit of you or your beneficiaries… The trustee or custodian must be a bank, a federally insured credit union, a savings and loan association, or an entity approved by the IRS to act as trustee or custodian…”
An IRA custodian can be generally defined as a firm that is saddled with the responsibility of keeping records of the assets and safekeeping the said assets of its clients. IRA custodians undertake an important function as set out in the Internal Revenue Code (IRC) that requires that IRA assets must be held by a custodian to provide overseer functions to people taking a hands-on approach to retirement investors. However, choosing an IRA custodian is an important decision that should never be taken with levity. This article provides you with insight into four things you need to understand about IRA custodians.
You have greater control over your IRA account
The first thing you need to understand in your relationship with a Bitcoin IRA custodian is that you’ll have a great control over the affairs of your self-directed IRA account. The custodian firm holds your retirement savings in an account but the responsibility of choosing the type of assets to be placed in the account will be transferred to you. Of course, you can choose to have Bitcoin, real estate, precious metals, and stocks among other things in your account.
However, since you are most likely setting up a Bitcoin IRA account or doing a 401K rollover to Bitcoin, you won’t need to bother yourself on doing due diligence on different kinds of assets and their tax implications for your retirement portfolio. However, a good custodian will have resources in place to provide you with up to date information, rules, and regulation about any asset you want to add to your portfolio.
With greater control comes greater responsibility
It has already been established that setting up a self-directed Bitcoin IRA under the watch of a custodian gives you greater control on your retirement portfolio. However, you should note that you’d be saddled with the responsibility of understanding the tax implications of your investment decisions. For instance, the law permits you to take annual distributions from your self-directed IRA once you are 70 and half years old. However, you’ll need to calculate the value of your assets in order to make the correct annually required minimum distribution.
Custodians charge different fees but you should seek value for money
The third point that you must understand is that the service of custodians are seldom free but the value they provide varies. Different custodians charge different kind of fees and the differences in the fee structure of one custodian doesn’t necessarily make the custodian superior or inferior to its competitors. For instance, some custodians charge a monthly, quarter, or annual maintenance fees while others won’t bother you about a maintenance fee.
Apart from maintenance fees, you can reasonable expect your custodian to charge transaction fees and commissions when you make trades in your self-directed IRA. However, the fact that you are setting up a Bitcoin IRA suggests that your retirement portfolio will be exclusively loaded with Bitcoin. Hence, you might not have many reasons to be worried about paying fees and commissions on multiple trades.
There’s a code of specialization among custodians
It is easy to assume that all IRA custodians are the same because they are saddled with the singular responsibility of keeping your retirement funds; however, nothing could be further from the truth. To start with, traditional IRA custodians have a core competency in helping you invest in traditionally stable assets such as bonds, mutual funds, ETFs, and some stocks.
Conversely, self-directed IRA custodians typically allow you put your money into alternative investments. Even then, self-directed IRA custodians specialize along the lines of helping you invest in Bitcoin, private company stock, and precious metals such as gold and silver among other alternative assets. It is important that you work with an IRA custodian whose specialty matches your investment vehicle, strategies, and goals.