What’s an IRA Custodian? (and Other Important Questions)

Saving for retirement is something many people struggle with. In fact, about 15 percent of working Americans have nothing saved up at all.

Though saving for retirement can seem daunting, it’s as simple as setting up the right type of retirement savings account. There are many options to choose from, but most people see great success with a standard IRA.

This account helps you maximize your retirement savings immediately. However, before you can open the account, you need to make sure you’re choosing the right type of IRA custodian. Here’s what you need to know to make the best choice.

What Is an IRA Custodian, Exactly?

An IRA custodian is an IRS-approved organization that hosts your IRA. They hold the money in your account and help you grow the value of your IRA over time.

The custodian could be a designated investment company, insurance company, or even your preferred bank or credit union. It’s up to you to decide where you want to open the account.

There are two main types of IRAs that you need to choose from: self directed and managed.

Self directed IRAs allow you to control the investments made with the funds in your account. Managed IRAs get invested in pools and funds that the custodian approves of. They’re the easiest option to work with since you’re able to auto-pilot everything.

Do You Have to Use a Custodian?

Ultimately, the custodian is a necessary part of opening an IRA. Without a custodian, you wouldn’t have access to different types of investments or a managing firm to hold and monitor your IRA. If you want to avoid using a custodian at all, you’d need to open a savings account or hold onto your assets in cash.

That said, you’re free to choose the type of custodian you want. If you want to be actively involved in selecting the investments for your IRA contributions, choose a self directed IRA custodian. However, if you want someone to manage everything for you, a managed or standard IRA custodian will be a better fit.

What Should You Look for in a Custodian?

Since a custodian isn’t an individual, you’ll need to look at the financial strength and portfolio used by the company or bank you’re opening the account with. You’ll want to choose a custodian that gives you access to investments that you’re comfortable with.

You should also read up on reviews to make sure others are happy with the services offered by the company or financial institution. Pay attention to the customer service you receive when inquiring about an IRA. The best companies and IRA custodians will be responsive and should take the time to answer your questions in detail.

Managing Your IRA Is the Key to Success

Having the right type of IRA custodian is essential to the success of your retirement planning strategy. Before you make a decision, think about how you want to manage the account.

If you want to be active with the account, enroll in a self directed IRA. If you want someone to invest everything for you, look for a managed IRA.

Whatever you choose, the sooner you start, the better off you’ll be. If you’re looking for more tips and tricks to help you jumpstart your retirement savings, check out our latest posts.

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