Investor vs. Custodian/Administrator Responsibilities With a Self-Directed IRA

Most IRA and 401(k) investors are used to having their hands held to some extent in the investment process. They work closely with financial advisors who carefully vet their investments from a pre-selected menu of registered securities, each of which have had their books and financial reports carefully vetted by an independent auditing firm in accordance with the Sarbanes-Oxley Act. Or they choose from a limited menu of mutual funds chosen for them by their 401(k) plan sponsor. But Self-Directed IRA investors take on some additional responsibilities.

When it comes to Self-Directed IRA investments, the Self-Directed IRA owner has the primary responsibility for doing due diligence and vetting his or her investments before investing money.

Of course, the ultimate responsibility is with the investor no matter what. It’s the investor who bears the ultimate risk if the investment doesn’t work out, and the price of bad advice or poor vetting is ultimately paid by the investor, personally. And a third-party auditing firm is no fail-safe: Ask anyone who invested in Enron stock in 2000.

Self-Directed IRA investments are often unrated, unregistered securities, private placements, venture capital investments, real estate, hedge funds, gold and precious metals, land or tax liens and certificates. You may see a prospectus, or there may not be one. It’s up to you to do the digging yourself, and to assess the accuracy of the seller’s or broker’s claims before you invest.

Self-Directed IRA investors and others who choose self-directed strategies or alternative investments for their retirement funds work with a custodian and/or a third-party administrator such as American IRA, LLC.

It’s important to understand who is responsible for what tasks when it comes to self-directed retirement investing. With Self-Directed IRA investing, you, the investor, take more direct control of the investment than most other investors do. You, and you alone, are ultimately responsible for the following tasks:

  • Determining the appropriateness if the investment for your own personal situation.
  • Determining the risk associated with an investment.
  • Reviewing the investment for the possibility of prohibited transactions.
  • Finding a seller or broker.
  • Making purchase arrangements with the seller, broker or sponsor.
  • Providing necessary documentation to support the asset purchase.
  • Providing written direction to disburse funds to the seller, broker or sponsor to purchase the transaction.
  • Finding a buyer.
  • Making sale arrangements
  • Verifying that funds are correctly invested.

The custodian or administrator of a Self-Directed IRA has important responsibilities, too:

  • Disbursing funds as directed by the account owner.
  • Ensuring the purchased asset is titled in the name of the IRA or retirement account and not the account owner’s personal name.
  • Providing period statements showing the account value (as nearly as can be determined).

Source: U.S. General Accounting Office Report: Improved Guidance Could Help Account Owners Understand the Risks of Investing in Unconventional Assets.

American IRA, LLC is among the leading providers of third party administrative services in the United States. With offices in Charlotte and Asheville, North Carolina, American IRA, LLC works with investors and owners of Self-Directed IRAs in all 50 states. Founder and CEO Jim Hitt has decades of experience working with Self-Directed IRA investors and investing in real estate and other alternative investments for his own personal retirement portfolio.

For more information about our services, and how to integrate alternative investment classes and Self-Directed IRAs into your own portfolio, call us today at 866-7500-IRA(472). Or visit us online at, where we maintain an extensive library of informative articles, blog posts, brochures and e-books.

We look forward to hearing from you.