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Self-Directed IRA Losses

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?


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 There have also been some unpublished court cases (which cannot be used as precedent but which are persuasive to other courts) that have ruled the same way.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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Consumers: Send in Your Questions to [email protected]

I transferred a stock from my IRA to my regular (non IRA account) and then transferred the exact same number of shares of the same stock back into my IRA within 60 days. However, the value of those shares was $10,000 higher.

Do I have a problem because I put more money into the IRA even though I transferred the same number of shares?


There is no problem. Your distribution of property (shares of stock) from your IRA qualifies to be rolled over tax-free within 60 days only if the identical stock is rolled over to a receiving IRA. It is common for the value of stock to change during the 60-day window. That’s OK and still qualifies as a tax-free rollover. When your tax return is filed for the year, your tax preparer may want to attach a note to explain the different values.