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Real Estate IRA Custodian – What is it?

real estate IRA custodian by IRA Financial Group

Real Estate IRA Custodian

You can establish and administer an IRA through a bank, financial institution or authorized trust company. This is pursuant to the Internal Revenue Code. An IRA trustee, also called a custodian, is the institution that administers your plan. By law, every individual retirement account must have a custodian or trustee.

The IRA custodian can decide what type of IRS approved investments you can invest in, like real estate. However, the majority of all banks and financial institutions that offer IRAs only permit you to make traditional investments. These include equities, mutual funds and stocks.

On the other hand, a Self-Directed real estate IRA custodian (passive custodian) allows you to engage in alternative asset investments. These are nontraditional investments, such as real estate, cryptocurrency and tax liens. Additionally, a Self-Directed IRA custodian does not offer investment advice.

Learn more about the Self-Directed IRA. 

Why Open a Self-Directed IRA

So, in order to establish an IRA to buy real estate, you must open an IRA at a Self-Directed IRA custodian. IRA Financial Trust is one such example. The reason you won’t be able to make alternative asset investments at banks like Fidelity is because they don’t make money from alternative assets. But you do.

An IRA custodian is responsible for maintaining and administering the individual retirement account. To this end, the IRA custodian is responsible for complying with all IRS reporting requirements regarding the IRA. This includes filing IRS forms 5498 and 1099-R.

More Responsibility for the IRA Holder

For most of the 50 million IRA holders who have a retirement account with a bank or financial institutions and invest in traditional assets, the IRA custodian could have a “best interest” responsibility. This depends on the involvement of a registered investor.

However, for IRA investors looking to make alternative asset investments, the real estate IRA custodian (in the case of real estate investments) isn’t a fiduciary. Therefore, it doesn’t provide any investment advice. For real estate investments, the real estate IRA custodian is responsible for facilitating the transaction in the direction the IRA holder permits.

Real Estate IRA Custodian

A Self-Directed real estate IRA custodian is not a fiduciary and does not off any investment, legal, or tax advice.  Accordingly, any IRA holder thinking about using a Self-Directed IRA to make real estate investments must be cautious and perform their own due diligence and review.

Adam Bergman is the founder of the IRA Financial Group & IRA Financial Trust Company.  For more information on this topic please call 800-472-0646.

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Posted in Self-Directed IRA