There will always be talk about fraudulent activity when investing in anything, and self-directed IRA’s are no exception. Unfortunately, we live in a world that is full of scams and schemes and people attempting identity theft. According to a report in 2011 by the Investment Company Institute, U.S., investors held about $4.7 trillion within their IRAs. This large figure makes IRAs an attractive target for fraud. This is why it is so important to conduct due diligence on any investment in your self-directed retirement account before making any investment.
Since a self-directed IRA is truly “self-directed,” your IRA administrator is not responsible for performing background checks on your investment. You have total control on where and what you want to invest in. The IRA administrator or custodian only does recordkeeping for the account and is not involved in the investment decision in any way. This puts the ball squarely in your court for vetting the investment.
Before making any investment using a self-directed IRA you should ask yourself the following:
- Who is touching my money?
- How long have they been in business?
- Are they regulated?
If you don’t know this information from the start you are already taking a risk. It’s important to do your research on the company you plan on investing with. Just Googling your investment and the manager can give you a lot of insight about your potential investment. You should also be aware of any unsolicited investment offers, especially if it is promoting the use of a self-directed IRA. Do your homework on every investment!
If an investment offers an outrageous guaranteed return with very low risk, you might want ask if this investment is too good to be true. Go with your gut instinct and don’t invest in anything you feel uncomfortable with. It’s always a good idea to ask a professional in cases you are unsure. Midland Trust is not a fiduciary but your CPA or tax advisor are great resources to consult with when making any investment.
The biggest mistake an investor can make is to not doing due diligence on their investment. Below are several websites that can help you investigate your investment:
- google.com – Google your investment and the manager and don’t be afraid to do a background check
- http://www.sec.gov/investor/alerts/sdira.pdf – SEC Investor Alert on self-directed IRAs and the risk of fraud.
- investor.gov – SEC’s Office of Investor Education and Advocacy
- aarp.org – American Association of Retired Persons – search their discussion board for great information
- http://www.finra.org/web/groups/sai/@sai/documents/sai_original_content/p036701.pdf – Electronic book on fighting fraud
- nasaa.org – The North American Securities Administrators Association
- saveandinvest.org – FINRA Investor Education Foundation
As far as your IRA custodian, consider Midland’s background to help you through this process. For more information, contact Midland today.