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The Parties Involved with Your Self-Directed IRA

Estimated reading time: 3 minutes, 25 seconds

About a year ago, we posted an article identifying the similarities between digital currency and precious metals investments. For those interested in digital asset investing, we identified the parties involved in both classes to help them get started.

In this exclusive blog post, we identify the parties involved in Self-Directed IRA investments to help clear up some initial confusion among new investors.

Unlike traditionally-managed IRAs, Self-Directed IRAs require a more active relationship between account holders and a variety of service providers. Whereas some entities may still manage the investments in the account, others may physically custody the assets, report account activity to the IRS, or may even transact directly with it. In fact, there are many possible players with Self-Directed IRA investing.

This post does not seek to include all potential players. Instead, just a handful will cover most of our current and prospective clients.

Custodian

Kingdom Trust serves as directed custodian for self-directed accounts and has a successful track record of performing its duties. Sadly, clients aren’t always educated about the role of a custodian when first investing with a Self-Directed IRA.

Did you know all individual retirement plans must be held by a bank, trust company, or other qualified financial institution? Custodians are well-versed in IRS regulations; record transactions such as contributions, rollovers, transfers, distributions, and any investments that made with an IRA; and reports such activity to the IRS (such as with Forms 1099-R and 5498).

In addition, custodians may often store the physical documents evidencing ownership of investment. This could include stock certificates, loan documents, and property titles, among other original documentation. At Kingdom Trust, this would also include digital asset storage solutions.

Advisor

Advisors are most often the windows by which someone first hears of a Self-Directed IRA. An advisor will help educate you on investment possibilities inside the account. They provide guidance and management of client portfolios based upon the clients’ investment goals, risk tolerance, and time horizon. Advisors will also work closely with the custodian to ensure your account needs are met.

Broker or Dealer

Depending on your investment, you may also work with a broker or dealer. Brokers and dealers buy and sell assets for your account—particularly digital assets and precious metals. Your custodian will work with your chosen broker or dealer and buy or sell assets upon your direction. The broker or dealer will work with the mint (for metals) or exchange (for cryptocurrency) to procure your investment.

Depository

If your IRA owns gold, silver, platinum, or palladium, those precious metals must be stored at an approved depository. They cannot be in your physical possession. Your chosen broker or dealer will work in concert with your custodian to deliver the metals to the storage facility you choose.

Private Business

If your IRA invests in a private equity asset, you will certainly work with private businesses. This may include private corporations, hedge funds, limited liability companies, partnerships, and more. Fund managers, investment sponsors, and LLC managers are some of the individuals on the other end of a private equity transaction. For example, representatives with the equity investment will work directly with your custodian to update the share/unit price or balance.

Borrower

Likewise, if your IRA invests in private lending, the borrower will play a role. Your account may earn interest from loans, issued to a non-disqualified person or entity. That borrower will submit payments of interest and principle directly to the custodian so that it may deposit those earnings into the IRA.

Again, this list doesn’t attempt to include all potential parties involved in a Self-Directed IRA. Depending on your investments and account activity, other potential parties could be legal professionals, CPAs and other tax professionals, securities broker-dealers, and real estate agents.

Nonetheless, for new self-directed investors, it may seem complicated and/or inconvenient to potentially deal with such a variety of parties. But expanding your investment opportunities may yield significant benefits to your retirement needs—not the least of which is opening the door to asset classes you’re passionate about, interested in, and suitable for your investment goals.

Learn more about Self-Directed IRAs and alternative asset investing by exploring our website. Also feel free to chat with us, email Client Services, or give us a call at 888.753.6972.

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