Regulators Warn About Self-Directed IRAs

A recent increase in fraudulent investment schemes involving self-directed individual retirement accounts IRAs has caught the attention of regulators. The North American Securities Administrators Association NASAA is seeing a rise in reports and complaints. Similarly, the Securities and Exchange Commission SEC has brought numerous cases over schemes that directed investors to self-directed IRAs.

A self-directed IRA is an account that allows you to invest in assets that are not publicly traded. These investments can include real estate and non-traded stock. In contrast, in a traditional IRA, which is typically held at a well-known brokerage firm or mutual fund family, investments are restricted to publicly traded stocks, exchange-traded funds, mutual funds, bonds and annuities.

For both types of accounts, the types of investment options are determined by the account’s custodian. The Internal Revenue Service requires that all IRAs be set up with a trustee or custodian that is a bank, a federally insured credit union, a savings and loan association, or “an entity approved by the Internal Revenue Service IRS to act as a trustee or custodian.”

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