The Individual Retirement Account custodian isn't someone who cleans up your money mistakes. The IRA custodian, or trustee, is typically the title taken on by the financial institution or brokerage where you open an account. IRA custodians must follow a complex web of Internal Revenue Service rules to administer retirement accounts. Each bank's IRA department has to keep an eye on the amounts and timing of required and at-will distributions. IRA staff must also keep up with changes in IRS rules regarding IRAs.
Like a child's legal guardian, an IRA custodian is considered a fiduciary. This means the financial institution must act in the IRA owner's best interest. Safeguarding IRA money is just one example. The custodian has to keep IRA funds separate from the bank's own funds.
You have to fill out a bunch of forms just to open an IRA. At the very least, there's the main application, the custodial agreement and beneficiary designation forms. You need yet another form if you want to take money out of an IRA or roll money into one. The custodian has to keep the forms on file and abide by them. For example, if an IRA owner dies, the custodian has to contact the beneficiaries to disburse the money. It's also the custodian's job to send you a regular account statement.
The IRA custodian has to follow IRS guidelines when it comes to contributions and withdrawals. For example, as of 2012, you can contribute only $5,000 per year to your IRA. When it comes to contribution limits, the IRS considers all IRA accounts as one. The custodian has to let you know when you've hit that limit. Of course, if you have multiple IRAs held by more than one custodian, it's up to you to keep track of your total contributions for the year.
You don't have to take a required minimum distribution (RMD) from a traditional IRA until you turn 70 1/2. The custodian has to let the IRS know when your RMDs start. In some cases, he has to figure the amount and get it disbursed. Otherwise, the custodian can tell you what the RMD is and leave it up to you to withdraw it by the December 31 deadline.
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