June 12, 2024

Is Madison Trust an Approved Nonbank Custodian?

Written By: Ian Robertson

Key Points 

  • Madison Trust is not included on the IRS' list of nonbank custodians because it is technically classified as a bank by the IRS due to its state-regulated status.
  • The distinction between a bank and nonbank custodian is not significant for Self-Directed IRA (SDIRA) holders, as all entities must adhere to the same IRS rules.
  • Regardless of the official designation, it's important to choose a reputable SDIRA custodian based on factors such as expertise and customer reviews.
A prospective investor wonders if Madison Trust is an approved nonbank custodian.

Self-Directed IRAs (SDIRAs) give investors more control over their investments, with the custodian facilitating transactions at the direction of the account owner. Madison Trust is a well-established, regulated Self-Directed IRA custodian with extensive experience. However, you won't find Madison Trust's name on the IRS' list of nonbank custodians. Why? Because Madison Trust is technically classified as a bank. Here’s a simple, step-by-step explanation:

What Is a Nonbank Custodian?

A nonbank custodian is an entity that holds assets on behalf of an investor but does not offer traditional banking services. In the case of SDIRAs, a nonbank custodian oversees the holding of alternative investments such as real estate, private equity, or precious metals that the account owner chooses to invest in. A custodian’s main role is to help ensure the retirement account complies with IRS regulations.

Why Isn’t Madison Trust on the IRS’ List of Nonbank Custodians?

A representative at Madison Trust, an approved nonbank custodian, speaks with their client about their investment.

Madison Trust also holds investment assets and does not provide banking services. So, why isn’t it listed as a nonbank custodian? 

The answer lies in regulations. According to IRS guidelines, the definition of a "bank" includes "a corporation which, under the laws of the State of its incorporation, is subject to supervision and examination by the Commissioner of Banking or other officer of such State..."

Though it may not match the typical image of a banking institution, Madison Trust is legally classified as a bank by the IRS because it's regulated by the State of South Dakota where it was first established. By contrast, nonbank custodians are subject to federal regulations.

Rules for Self-Directed IRAs

Banks and nonbank custodians can offer IRAs. The product remains the same no matter which entity you choose as custodian. If you're interested in a Self-Directed IRA, however, you'll likely have your assets held by a bank because most SDIRA custodians are state regulated, just like Madison Trust.

Regardless, all SDIRA holders must adhere to the same IRS rules. It doesn’t matter if you have a Gold IRA, Real Estate IRA, or if you focus on private placements. Your custodian will work with you to keep your SDIRA in good standing compliance-wise.

Finding a Reputable SDIRA Custodian

Ultimately, a custodian's status, whether bank or nonbank, is only as reliable as their credibility. You can find a desirable custodian by choosing based on factors like reputation and experience rather than IRS designation.

Madison Trust has been helping investors set up Self-Directed IRAs for over a decade. We combine a sterling track record with excellent customer service and industry expertise.

If you want even more control over your investments, we can also help you open a Self-Directed IRA LLC or IRA Trust with checkbook control, also called a Checkbook IRA, with our sister company, Broad Financial. We’ll still serve as your custodian, but you will be able to manage everyday investment transactions on your own through a dedicated checking account for your SDIRA. Think of it as somewhat of an upgrade, although a classic SDIRA can certainly be just as ideal depending on the types of assets you want to invest in.

An investor monitors their investment, reaching out to Madison Trust, their nonbank custodian, whenever an inquiry arrives.

Opening a Self-Directed IRA With Madison Trust

When you want to invest in real estate, private equity, or other alternative investments, our team of SDIRA Specialists can help you open a Self-Directed IRA  in three easy steps.

Open: Open a Self-Directed IRA with Madison Trust by completing our easy online application.​

Fund: Fund your Self-Directed IRA by transferring or rolling over all - or a portion of - your funds from an existing retirement account, such as an IRA or 401(k), or by making an initial contribution.​

Invest: Instruct Madison Trust to send your IRA funds by writing a check or sending a wire directly to your investment. ​
Schedule a discovery call today to learn more about how Madison Trust can help you take control of your retirement investments.

Disclaimer: All of the information contained on our website is a general discussion for informational purposes only. Madison Trust Company does not provide legal, tax or investment advice. Nothing of the foregoing, or of any other written, electronic, or oral statement or communication by Madison Trust Company or its representatives, is intended to be, or may be relayed as, legal, tax, investment advice, statements, opinions, or predictions. Prior to making any investment decisions, please consult with the appropriate legal, tax, and investment professionals for advice.

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