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February 19, 2009

Custodial Account

Your Guide



Brokerage account established to hold assets under a retirement plan or ESA.

When establishing a retirement account, the account may be a trust account or a custodial account, and the applicable agreement must be used. For instance, a Roth Individual Retirement Custodial Account agreement or the custodians prototype agreement is typically  used to establish a Roth IRA at a brokerage firm

Referring Cite

Custodial agreement, IRS Form 5305-A

Additional Helpful Information

  • The custodial agreement should be consulted to determine the options available to the IRA owner and beneficiary. For instance, an agreement may provide that beneficiaries of IRA owners who died before the required beginning date (RBD) are subject to the 5-year rule by default. If that is not favorable to the IRA owner, and no other options are available, the IRA owner would need to decide whether to transfer the IRA to another custodian.
  • A custodial agreement must include certain provisions. Examples include:
    • An IRA must not invest in life insurance contracts
    • The owner’s balance is nonforfeitable
    • The assets will not be commingled with other property
    • Contributions must be made in cash
  • Rollover Restrictions in Trust or Custodial Agreements : The account holder’s right to transfer amounts from HSA to another HSA or to change trustees of the account cannot be restricted.
  • Distribution Restrictions in Trust or Custodial Agreements: Only the account holder may determine how the funds in their HSA will be used. The plan agreements cannot limit the distributions to only cover expenses of the account holder or limit the nature of what may be reimbursed. The custodian or trustee may however place reasonable restrictions on the frequency and amount of distributions.

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.


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