Bank managed Common Fund Investments

[Guest agsmith]

Can a Trusteed IRA invest in Common Trust Funds if the bank has sole discretion?

[mbozek]

I dont understand your question. Is the bank the custodian for the IRA as well as trustee of the common trust fund? If so then I think the bank is engaging in a PT if the bank is collecting a fee from the IRA as custodian and a fee for managing the trust fund because a Fiduciary can not use IRA assets to benefit its own account under IRC 4975©.

[Guest agsmith]

Our Trust department has an investment area which runs some common collective funds for our personal trust and retirement plan departments as a service to our customers. No fees are charged out of the common funds or billed to the IRA customer. It is a service provided to our customers free of charge. We are only getting Fees from the IRA as custodian.

To help clairify:Can a Trusteed IRA invest in Common Trust Funds if the bank has sole discretion over the investments in the Common Funds?

[mbozek]

A prohibited transaction under IRC 4975©(1)(E) occurs if a fiduciary deals with IRA assets for his own account. If the Bank does not collect an investment management fee from the IRA there should not be a PT but you should check with the Banks lawyers for a definitive answer that the bank is deriving no benefit from investment of such funds.

[Guest P A Weick]

Section 408(a)(5) of the Internal Revenue Code would appear to allow it. However, you could only so invest if the common trust fund is registered under the 1933 Securities Act. If it is not the SEC would claim you are selling unregistered securities to the public.

[Guest agsmith]

The point is. The bank managees common collective funds. The fees are not an issue. The issue is that federal laws allow investments in common collective funds managed by the bank. There is an issue from the SEC that says IRA's cannot invest in common funds unless registed with the SEC. I have been told that if the bank acts as trustee, this rule does not apply. I wondered if anyone else had dealth with this issue.

[Guest P A Weick]

Whoever told you that is mistaken. According to the SEC being trustee of an IRA is not the type of traditional trustee activities which allow a bank to use a common trust fund for investment purposes.

[Guest agsmith]

Thank you Weick!!!