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Investor Alert: Self-Directed IRAs and Fraud Risk

The SEC (Securities and Exchange Commission) has recently issued an alert on self-directed IRAs and fraud risk (http://www.sec.gov/investor/alerts/sdira.pdf).

(Editor's Note: You can also watch a video with 5 actionable tips to help avoid fraud promoters by CLICKING HERE.)

They make the following points:

  • Self-directed IRAs allow a broader range of investments, including real estate, tax lien certificates, private placement securities 
  • Self-directed IRA agreements specify that the financial institution only holds the IRA assets - they do not assume any responsibility for the legitimacy of the investment 
  • The characteristics of self-directed IRAs “makes them attractive targets for fraud promoters” 
  • The value of the asset may be that provided by the investment promoter and may not be the actual value of the asset when it is sold - if it can be sold 

Their recommendations to investors follow (emphasis added):
  • Avoid unsolicited investment offers
  • Ask questions 
  • Be mindful of “guaranteed” returns 
  • Ask a professional 

Additional Information 

For additional educational information for investors, see the SEC’s Office of Investor Education and Advocacy’s homepage, the SEC’s Investor.gov website or NASAA’s investor education webpage.

For additional information related to avoiding fraud, also see:
For additional information regarding IRAs, please see the Internal Revenue Service’s IRA Online Resource Guide. 

-By IRA Technical Consultant Beverly DeVeny and Jared Trexler



Thursday's Slott Report Mailbag

Consumers: Send in Your Questions to [email protected]

I have your book, but unfortunately it is at my cabin so I don't have access right now. I am inheriting a Roth IRA from my wife, who recently passed away at 65. It was converted to a Roth in December 2008.

First question: Is it better to keep it as a separate Roth IRA, or add it into my existing Roth IRA?

Second question: Do I have to take RMDs on this account now or later?

John in AZ

Question 1. As a spouse beneficiary you have two choices, other than taking a complete distribution.

A. You can establish a beneficiary Roth IRA or
B. Make it your own Roth IRA

If you select option B you will not have to take required minimum distributions (RMDs). With Option A, you would be required to take RMDs beginning in the year the deceased spouse would have attained age 70 1/2. Option B gives you the most flexibility. You can take distributions at any time (or not). It is your option. Distributions will be tax-free. Make sure you name your own beneficiary when you select your option.

Question 2. If you make it your own Roth IRA, you could combine it with your own Roth IRA.