Planning Briefs

Self-directed Individual Retirement Accounts (IRAs) are at greater risk of fraud than other types of other retirement accounts. Here’s what you need to know before investing in a self-directed IRA account.

With more than $30 trillion currently held in company-sponsored retirement plans, self-directed IRAs are a way for peddlers of high-risk, high expense investments and outright frauds to lure investors. 

A self-directed IRA is an account that taps assets in a company-sponsored 401(K), 403(b) or other federally qualified retirement plan (QRP) to enable an investment not provided by a company retirement plan.

QRPs often do not allow employees to make investments in alternative assets, such as investments in real estate, gold bullion, private investments, and cryptocurrency because these investments are less liquid than publicly traded stocks and bonds.  However, most company retirement plans will allow an employee to create a self-directed account to hold these assets.

A confluence of events makes Americans more susceptible to falling for a self-directed IRA account scheme:

• Forty percent of Americans aged 60 to 64 are at risk of experiencing a retirement shortfall, according to the Employee Benefit Research Institute, and less than one-third of American workers feel very confident about their ability to afford a comfortable retirement.
• Social media allows social influencers to conspire to pump up prices on investments and conspire to sell their holdings to their social network followers.
• Celebrities, Hollywood stars, and professional athletes, including social influencer Kim Kardashian, retired quarterback Tom Brady, and actor Matt Damon, endorsed cryptocurrencies and helped create a speculative bubble by giving these ill-fated investments legitimacy.

Before opening a self-directed IRA to invest in an investment that’s off the grid provided by your company sponsored plan, it’s wise to consult a real financial professional.    

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