What are Self-Directed Retirement Plan Administrators and Custodians? Both professional roles are involved in retirement plans in different ways.

Published on January 22, 2024

Anyone with a retirement plan—whether through their workplace, a brokerage or other financial institution, or as the owner of a self-directed IRA—has important professionals working behind the scenes. These are the retirement plan administrator and the asset custodian.

In this article, we outline the responsibilities of these roles and the differences between retirement plan administrators and custodians.

Self-Directed IRA Administrators

The self-directed IRA administrator (such as Next Generation Services) focuses on the administrative tasks associated with clients’ accounts and manages the day-to-day needs of the plans. If you are planning to open a new self-directed IRA in 2024 as part of your retirement savings goals, be sure you work with an experienced administrator with specialized knowledge of the unique regulations related to self-directed investments—as well as the nontraditional investments allowed in these plans.

As a neutral third-party administrator, this entity:

• opens new accounts
• receives funds and ensures they are properly coded
• maintains financial records
• executes transactions and disburses funds based on the account owner’s instructions
• responds to account-related inquiries
• performs basic compliance checks to ensure the transactions comply with IRS investing guidelines and that the tax-advantaged status of the IRA is maintained (for example, no prohibited transactions or transactions involving disqualified persons) 

In the case of Next Generation Services, we also offer client education on an ongoing basis to keep self-directed investors informed about and up to date on the various types of alternative assets that self-direction allows.

The administrator does not hold title to the assets within clients’ accounts. Therefore, to complete client transactions, the self-directed IRA administrator must establish a relationship with a self-directed IRA custodian or trust that holds the funds and investments. At Next Generation Trust Company, our clients benefit from having both these critical functions within one company ownership.

Custodians for self-directed IRAs

“Custodian” is a legally defined entity that is recognized by the IRS. The custodian holds (safeguards) the assets of the self-directed IRA on behalf of the investor. When we say the custodian “holds the assets,” this means the entity (custodian) holds a “nominal” title within the self-directed IRA on behalf of the investor.

All IRAs (whether self-directed or not) must be held by a custodial entity such as a bank, credit union, trust company, or other entity that is licensed and regulated by the IRS as a “non-bank custodian.” Next Generation Trust Company is our company’s IRS-approved custodial entity, chartered and regulated as a public trust company by the South Dakota Division of Banking.

There is some crossover of responsibilities in that in general, the IRA custodian also manages recordkeeping, reporting, and compliance with IRS regulations. As an entity with broader capabilities, custodians can handle all aspects of a self-directed IRA.  These include:

• holding and transferring assets
• providing detailed annual statements, required minimum distribution (RMD) notices, and other information
• reporting tax information to the client and the IRS on Form 1099 and Form 5498 

An important point to keep in mind is that neither the self-directed retirement plan administrator nor the custodian gives investment advice. Self-directed investors are those who are comfortable doing their own investment research and due diligence about the alternative assets they wish to include in their plans. At Next Generation, we always recommend that clients consult their trusted advisors for investment guidance.

That said, many on our team are SDIP certified, having completed advanced training and certification about the many alternative assets allowed in self-directed retirement plans. We are here to answer many questions related to these plans. You can schedule a complimentary educational session to find out more, or contact us at NewAccounts@NextGenerationTrust.com or (888) 857-8058.