The IRS regulations (Treas. Reg. section 1.408-2(e)(5)(ii)) provide a mathematical rule for nonbank trustees to demonstrate that they have adequate net worth required to offer IRAs. Although the math is easy, meeting this rule has historically been a challenge.
Now, with the guidance set forth in Notice 2026-32, effective May 21, 2026, broker-dealers have an alternative way to satisfy the IRS’s net worth requirement. Carrying broker-dealers seeking to be nonbank trustees can now meet SEC Rule 15c3-1 (SEC Net Capital Rule) and SEC Rule 15c3-3 (SEC Customer Protection Rule) instead of the adequacy of net worth requirement, provided the broker-dealer does not operate pursuant to an exemption report under SEC Rule 17a-5(d). In developing this alternative method, the IRS noted the two SEC rules are designed to address the same concerns as the IRS’s test – ensuring that the broker-dealer maintains a level of solvency proportional to their financial responsibilities. Further, the IRS noted that carrying broker-dealers are subject to substantial oversight, including by FINRA. Therefore, the Notice holds that these rules fall within the existing regulations exception under Treas. Reg. 1.408-2(e)(6)(ii), permitting compliance with these SEC rules in lieu of the IRS net worth test.
The Notice asks for comments on the circumstances where a nonbank trustee relying on the SEC rules would be treated as no longer satisfying those rules, and what documentation must be submitted to demonstrate compliance with the SEC rules. This alternative method is available for new nonbank trustee applications, as well as for existing nonbank trustees who notify the IRS in accordance with IRS regulations (Treas. Reg. 1.408-2(e)(6)(iv)). Notably, pending updated application procedures, nonbank trustee applicants that are carrying broker dealers can apply a reasonable, good faith interpretation of the Notice and Revenue Procedure 2026-4.
Comments are due July 20, 2026 – which can start off by thanking the IRS for a practical approach!
a broker-dealer that carries customer accounts and receives or holds
funds or securities for those customers (a carrying broker-dealer) may, in lieu of demonstrating satisfaction of the adequacy of net worth requirement for nonbank trustees under § 1.408-2(e)(5)(ii), demonstrate satisfaction of Rule 15c3-1 (SEC Net Capital Rule) and Rule 15c3-3 (SEC Customer Protection Rule) (together, SEC Net Capital and Customer Protection Rules) of the Securities Exchange Act of 1934, as amended (Exchange Act).
