Custodian Neutral Trusteed IRA

The Current IRA Market (as of 2012)

The IRA market has grown substantially over recent years as the baby boomer generation prepares for retirement. With nearly 40.4% of all American households investing in at least one IRA, total IRA assets topped $5.4 trillion in the fourth quarter of 2012. This amount represents more than a quarter of the total $19.5 trillion retirement market in the United States and has grown at an average rate of ten percent annually since 1990.  Clients want a simple and sophisticated financial planning tool for this huge asset pool – custodian neutral Trusteed IRA.

This rapid growth makes this asset class highly coveted by financial institutions and investment advisors. As more money continues to move into the retirement sphere, investment advisors can use IRA accounts to increase the size of their investment portfolio. This, in turn, will generate higher revenue for advisors through trading and investment advisory fees.  However, the benefits of IRA accounts for advisors go beyond simply being a lucrative revenue source. Advisors are also able to make asset allocation decisions for their portfolios without the fear that the IRA funds will be withdrawn on a whim. Because there are punitive penalties for withdrawing the assets before the age of 59½ and tax incentives for waiting until 70½, IRA assets are a stable investment source that allows investment advisors to invest with a long-term horizon in mind.

However, current trends show that IRA withdrawals will increase significantly over the next decade, both in dollar amount and as a percentage of total retirement income, as the baby boomer generation enters retirement. Total IRA withdrawals increased to $189.8 billion in 2007 from just $23.7 billion in 1988. Similarly, although they held only 45.7% of IRAs nationwide in 2004, taxpayers aged 55 and older controlled 72.7% of the total IRA assets. It is evident that these withdrawals will only continue to increase as the retiring population begins to draw down on their accounts to pay for retirement. These trends pose a large potential problem for the investment advisors managing the IRA assets since funds withdrawn from accounts or passed on when account holders pass away are seldom kept with the same institution. In fact, recent studies by TD Ameritrade and Pershing have shown that roughly 80% of IRA assets will be lost when a client passes away.   Increasingly, investment advisors and custodians are being forced to look for alternative methods to retain IRA assets and accounts.

Wealth Advisors Trust Company has created the SMARTIRA™ (known by tax accountants as custodian neutral Trusteed IRA) as a possible remedy to counteract the current IRA withdrawal trends.

More importantly, the SmartIRA™, also known as the custodian neutral Trusteed IRA,  is a simple and sophisticated financial planning tool.  Beneficiaries can enjoy the real stretch provisions, creditor/asset protection, and solving multiple marriage scenarios.  

Although estate planning does not have one-size fits all solution, the creation of the SmartIRA™ is beneficial for both the client and the advisor. As soon as your client opens the SmartIRA™, which is a custodian neutral Trusteed IRA, a revocable management trust is created that can be altered during the client’s lifetime. This allows the client to customize his or her to estate planning goals while reducing legal fees and administrative hassle. Upon your client’s passing, the trust becomes a testamentary irrevocable trust, thereby cementing the beneficiaries and distribution provisions according to your client’s wishes. The Trusteed IRA also helps retain IRA assets with the financial advisor since the beneficiaries cannot pull or redirect the assets all at once. Therefore, the advisor mitigates the potential problem of IRA withdrawals as the baby boomers begin to pass away and provide continuity for IRA management during the client’s lifetime.  In essence, the client is creating a pension plan for future beneficiaries and you retain your advisory role for years to come.