When and How to Change Your IRA Custodian

Your IRA custodian can play a big role in the overall success of your retirement account. At some point, it may be to your advantage to change IRA custodians to improve your chances of success. Here are a few things to consider about when and how to change custodians. 

When to Change

IRA custodians are like caretakers of your retirement dollars. They are usually a financial institution, such as a brokerage firm. You give them your money to hold and they take care of it for you, in turn they invest for you and tell you what you can and cannot invest in. Since IRAs have certain rules that must be adhered to about investments, they help you keep your IRA from being invalidated by a faulty investment. However, sometimes, they outgrow their usefulness to you. 

Many times, custodians will charge a certain yearly maintenance fee. You should get out and shop around between other custodians to see if the fee that you are being charged is too much. If you are paying more than you should be, that would be a good reason to change custodians. 

Another great reason to change custodians is if they are limiting your investment options. The IRS will not allow you to invest in life insurance, collectibles, or make any personal dealings, such as buying a house to live in. However, beyond that, any restrictions are placed there solely by the custodian. If you want to invest in real estate with your IRA but your custodian does not allow it, you should consider transferring your account. 

Rolling Over Your IRA

In order to change custodians, you will need to perform an IRA rollover. This is a standard procedure that you should be able to handle with a little help from your new custodian. The first thing that you need to do is shop around for a new custodian to utilize. Once you locate one, apply for a new account with them. Let them know that you will be rolling over funds into their account. 

At this point, you will want to notify your old custodian that you want to roll over your funds. They may try to talk you out of it at first. Once you get past this, they will have a withdrawal form that you need to fill out. You will have to decide whether you want them to disburse the funds to you or transfer them directly to your new custodian. 

Other Considerations

When you decide to handle the transfer yourself, you will need to make sure that you adhere to the 60-day rule with IRAs. If you do not get the money transferred to your new custodian within 60 days of getting it, the IRS will treat it as an early distribution. When this happens, you will be subject to a 10% penalty on the money. You will also have to pay income taxes on the money that you received. Therefore, it is usually safer to just have the money transferred from one custodian to the next without personally touching it.

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