The facts and fiction behind self-directed IRAs

Not long ago, the North American Securities Administrators Association (NASAA) issued a warning to investors about custodians who handle self-directed individual retirement accounts (IRAs). A self-directed IRA holds nontraditional investments like real estate, metals, or limited partnerships. These accounts have been the subject of growing regulatory scrutiny and punitive action. Before investing in a self-directed IRA, make sure you’re aware of the risks involved. In its warning, NASAA dispelled 3 common myths surrounding self-directed IRAs. 1) The custodian is somehow blessing the investments available to you, performing due diligence and monitoring your account. The reality is that your custodian is not a fiduciary so it has no obligation to do so. 2) Your investment is safe because the custodian is a regulated trust company. In reality, the custodian is approved by the Internal Revenue Service, but its only real duty is to report contributions to and distributions from your account. 3) The custodian is holding your investment assets. In reality, it’s just a keeper of deposits and distributions from the account. Unfortunately, some investors have had to learn this lesson the hard way. Two things you should know if you’re considering a self-directed IRA: 1.    Prohibited transaction rules: These rules