So you invested your self-directed IRA with Bernie Madoff, or your neighbor for his garage start-up, or in real estate and you lost everything. Is there someone you can blame other than yourself?
NO.
A self-directed IRA is just what the name suggests. It is an IRA where the IRA owner takes charge of the investing of the IRA assets. You do this for one of two reasons. Either you think you can do better than a professional at an IRA company, or, you want to invest in something other than stocks, bonds, mutual funds and money market accounts. Generally you must open the IRA with a company that specializes in holding non-traditional IRA assets although some of the more traditional IRA custodians do offer self-directed IRA accounts.
A close look at the IRA agreement for a self-directed IRA (yes, you will have to look through all that small print) will turn up language to the effect that you are taking responsibility for the investments and that the IRA custodian has no obligation to help you out. The courts have also ruled this way. A recent case by Madoff investors against a self-directed custodian was won by the custodian. There have also been some unpublished court cases (which cannot be used as precedent but which are persuasive to other courts) that have ruled the same way.
So if self-directed IRA investing is the way you want to go, just remember, you have no one to blame but yourself - whether the account goes up in value, or down.
By Marvin Rotenberg and Jared Trexler
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*Copyright 2011 Ed Slott and Company, LLC
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