The institution you choose as the custodian of your Individual Retirement Account (IRA) is responsible for keeping track of your investments and ensuring that you comply with Internal Revenue Service rules. Banks, insurers and specialty brokers may act as your custodian.
You must pick a custodian to manage your IRA. Custodians are certified by state and federal authorities. If you have any doubts, ask to see a custodian's credentials and make follow-up calls to the appropriate regulatory agencies.
Banks often act as IRA custodians. You may also place your money with an investment brokerage firm or an insurance company. In addition, you could engage specialty custodians to manage IRAs invested in niche industries, such as real estate.
An IRA custodian is responsible for providing you with account reports and reporting tax information to the IRS. The custodian also is responsible for carrying out any transactions associated with your account, such as buying or selling stocks.
Custodians are not financial advisers. You may need a separate fund manager to provide advice.
Federal regulations prohibit IRA custodians from charging excessive fees, but you should ask about administrative costs before signing up. Some custodians charge an annual maintenance fee, and many get commissions on trades.
A 2006 law requires up to $250,000 of Federal Deposit Insurance Corp. (FDIC) coverage against the total worth of your IRAs and 401ks held at one institution. This rule only applies to FDIC-insured banks--many other types of IRA custodians, including brokerage firms, are exempt. Keep in mind that the FDIC only insures against bank insolvency. It will not reimburse you for a bad investment.