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IRAs: Administration and Custodial Issues

Last update on: May 28 2020
By Bruce Miller


In this series of articles featuring my IRA Quick Reference Guide, I explained the main points about IRA contributions, rollovers, transfers, withdrawals, potential taxation issues and naming of beneficiaries. For each section, I answered a few topic-related questions that I received from real IRA owners, so that I can better relate some of the specific situation you might encounter and explain the basic choices you have.

Before I offer some final notes and conclude this IRA Quick Reference Guide series, I will provide in this article some supplementary information that IRA owners must keep in mind regarding the administration of their IRAs and a few custodial considerations.

1.  Current Federal Bankruptcy Laws protect IRA assets from bankruptcy creditors. However, please note that this protection extends only to funds that are “reasonably necessary” to support the IRA owner and his or her dependents. The protection limit – originally set at $1,000,000 – adjusts for inflation every three years. The most recent adjustment – effective April 1, 2016 – set the limit at $1,283,025 for the subsequent three years through April 2019. The law does not provide any bankruptcy protection from creditors for any IRA assets above that limit. Please note that individual states may have their own laws and may have additional coverage, extra protection or higher limits.

2.  However, the Federal Bankruptcy Laws described in the first point above do not protect all types of IRAs. The June 2014 U.S. Supreme Court ruling in the Clark v. Rameker case does not include non-spouse inherited IRAs as retirement assets afforded bankruptcy protection from creditors as owner IRAs or spousal IRAs. This decision impacts only bankruptcy cases. Individual states have the power to determine the level of creditor protection for inherited IRAs in other matters, such as non-payment of debts or court awards. The level of protection can vary widely between states.

3.  Federal regulations generally cover and exempt from bankruptcy retirement plans rolled over into a rollover IRA that are not comingled with existing IRA assets.

4.  IRA custodians may, at their discretion, limit certain investment activities. The custodian may choose to limit – or outright prohibit – trading activities such as trading of put and call options, allowing margin trading, commodity trading, holding of municipal bonds, certain alternative investments and partnership units.

5.  IRA owners may pay their IRA management fees that are separate from transactional fees such as brokerage trading commissions, mutual fund management fees or sales loads with dollars held outside of the IRA.

a.  Examples of such externally paid fees are wrap account fees, annual servicing fees, custodial fees, general account fees or trust management fees.

6.  The custodian may, and generally will, require that the IRA owner designate a primary IRA beneficiary and a contingent beneficiary before opening an IRA. Additionally, the IRA custodian usually will require that the IRA owner periodically confirm or update the beneficiary or beneficiaries.

7.  Some custodians will offer Rollover IRAs to hold assets of retirement plans. This used to be the only way the proceeds of one retirement plan could be rolled to another retirement plan. Because current retirement plan savings are fully portable between retirement plans and IRAs, the rollover IRA is not used very often today. However, a rollover IRA plan will provide creditor protection equal to what is provided for retirement plans under the Employee Retirement Income Security Act of 1974 (ERISA retirement plans), instead of the more limited protection of an IRA.

The information and suggested courses of action proposed in this and all the previous articles in my IRA Quick Reference Guide series are designed to provide rough guidelines. In my next article, I will share some final notes and few reference sources that IRA owners and retirement investors can use to find additional information. For any additional guidance regarding your specific situation, the IRA owners, as well as designated IRA beneficiaries, should consult financial professionals or legal counsel specializing in retirement cases.

Bruce Miller



Bruce Miller is a certified financial planner (CFP) who also is the author of Retirement Investing for INCOME ONLY: How to invest for reliable income in Retirement ONLY from Dividends and  IRA Quick Reference Guide.

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