When you open a Self-Directed IRA, your investment options may be vastly more varied than your options with an employer-directed IRA. While your employer may choose ETFs or mutual funds, for example, you may choose real estate, stocks or even gold.
With this flexibility comes risk. The responsibility of opening your own IRA means you will have to choose your own custodian; unfortunately, there are scam artists who will take advantage of that fact.
Avoid putting your money in the wrong hands; follow these tips to choose a legitimate Self-Directed IRA custodian.
Tip #1: Check the firm against the IRS
First and foremost, it’s important that you check your custodian against the IRS’s list of approved trustees and custodians. This step speaks for itself; it’s a critical action you should take before you invest any money.
Tip #2: Beware of Firms that Claim to Hold Your Investments
Your Self-Directed IRA custodian should not hold your investments. Instead, the responsibility of your trustee is to act as an intermediary between you and the issuer of your investment. A claim or offer by an individual or firm to hold your assets should send up red flags.
Tip #3: Steer Clear of Trustees Who Recommend Investments
Your custodian’s job is to facilitate financial transactions, ensure that your investments are legal, and complete the necessary paperwork and reporting. If your custodian makes recommendations on your investments, this should serve as a warning to you that your investment may not be safe.
Often, scam artists recommend investment products that will benefit their own interests. For instance, they may suggest that you invest in their real estate, or in their own company. Self-Directed IRAs do afford you a measure of flexibility that you won’t get with an employer-directed account. However, it’s best not to take financial advice from your custodian. Instead, seek the assistance of a legitimate financial advisor.
Tip #4: Carefully Vet Unsolicited Promotions
It’s not unheard of for an IRA holder to receive a call from a financial institution offering a promotional investment opportunity. However, it’s imperative that you investigate the entity prior to allowing any money to change hands.
Scam artists understand that investors may be discouraged by their current investment strategy. After all, most IRA investing takes a long-term approach and investors may not see high yields.
Be wary of any unsolicited promotions you may be offered. Scam artists offer investors the opportunity to roll their existing IRA into another investment opportunity with higher yields, when in fact those investments may not be secure at all.
Verify each potential investment with the SEC. If you’ll be dealing with precious metals, a business or other non-traditional investment, do your research and find a licensed professional to help you assess the legitimacy of the investment. Remember that you are ultimately responsible for ensuring the security of your assets, so be sure to scrutinize any offers you receive.
Tip #5: Trust Your Intuition
In a perfect world, investors would choose custodians that were tried and true, IRS-approved and legitimately able to act as a liaison between an investor and an issuer. This is not a perfect world, however, and scam artists have found plenty of ways to part unsuspecting victims from their hard-earned retirement money.
Before you open or roll over an IRA with a custodian, you are not familiar with, do your research. If your “gut feeling” is that something is not right, or is too good to be true, you’re probably correct. To protect your assets, it’s best to choose an experienced Self-Directed IRA firm that is approved by the IRS and qualified to handle your finances.