New Suits Over Do-It-Yourself IRAs, as reported by the Wall Street Journal, prompts American IRA, LLC to remind self-directed IRA holders about the importance of ‘Due Diligence’. Regardless of what you invest in…it is critical that investors perform ‘due diligence’ and that they hire professionals to perform ‘due diligence’ for them when they are working in an area that they are not an expert in.
The Wall Street Journal reports that a wave of blowups in self-directed IRAs has prompted some investors to go after firms that handle the paperwork. The article goes on to report that self-directed IRAs have been around for years and have increased in popularity as investors sought after investments that brought higher returns than the stock market.
This recent lawsuit has brought suit in the U.S. District Court in Los Angeles by investors who allege that the companies administering their accounts knew the investors money had been stolen by scam artists yet sent them reports showing the value of their account remained the same. Jim Hitt, CEO of American IRA explains, “There is a common misunderstanding of how the retirement accounts are valued. When an investor takes money out of their retirement account and purchases an asset, the value of that asset is included in the value of the retirement account. The difference is between “cash value” which is the actual “cash” in the account and “asset value” which is the combined value of all the assets in the account. The value of the asset is established at the time of purchase and is then required to be re-evaluated by a professional each year. The professional deems the value of the asset and then that asset’s value is updated accordingly on an annual basis. In the event that an asset loses value prior to the annual evaluation, the account holder must get a professional to evaluate the value and only then can the asset’s value be updated in their account. It is very likely in this case, that the asset values were never formerly re-evaluated which left the value of the account the same even though the investment had gone flat.”
American IRA always emphasis’ the importance of ‘due diligence’ and the importance of working with an administrator who is willing to explain the self-directed IRA process.
The Wall Street Journal article goes on to explain that the outcome of this lawsuit is unclear since administrators do not choose the investments or take fees based on investment success. Jim Hitt, offers a reminder “Administrators do not assign the value to assets.”