While we are not experts in the complex tax laws governing individual retirement accounts (IRAs), we believe that this arrangement would entail significant risk for your bank.

By serving as custodian for a self-directed IRA, your bank, even if not engaging in a fiduciary relationship with the IRA, would be a “disqualified person” for providing services to the plan, and therefore subject to the prohibited transaction rules for IRAs. Further, the IRS has opined that the risk of a prohibited transaction is increased when IRAs hold nonpublicly traded assets, such as your bank holding company’s stock. Consequently, we recommend consulting with qualified IRA counsel before serving as the custodian for any self-directed IRAs, particularly for IRAs that are holding your bank holding company’s stock.

For resources related to our guidance, please see:

• IRS Retirement Plan FAQs (“A disqualified person is any of the following: (1) a fiduciary of the plan; (2) a person providing services to the plan; . . . (7) a corporation, partnership, trust, or estate of which (or in which) any direct or indirect owner described in (1) through (5) holds 50% or more of any of the following: the combined voting power of all classes of stock . . . .”)

• IRS Publication 590b, Prohibited Transactions (“If your IRA is invested in nonpublicly traded assets or assets that you directly control, the risk of engaging in a prohibited transaction in connection with your account may be increased.”)