WASHINGTON, D.C. (December 1, 2014) – The North American Securities Administrators Association (NASAA) today issued an advisory to help investors separate fiction from fact regarding the responsibilities of third-party custodians of self-directed individual retirement accounts (IRAs) and other qualified plans.
“While self-directed IRAs can be a safe way to invest retirement funds, investors should understand that third-party custodians have limited duties to investors,” said William Beatty, NASAA President and Washington Securities Director.
Since the mid-1970s, investors have taken advantage of a provision in the tax code allowing them to contribute money on a tax-deferred basis to an individual retirement account, popularly referred to as an IRA.
To open an IRA account, the investor must find an Internal Revenue Service (IRS)-approved company to act as the account’s custodian. Investors open and deposit funds into the account and may invest in opportunities available through the company. A self-directed IRA allows investors to have complete decision-making power regarding the investments in their IRA.
Occasionally, an investor is approached by a promoter offering an investment opportunity not available through the company that holds the investor’s IRA. The promoter may direct the investor to transfer funds from the original IRA to a new third-party custodian to facilitate the transaction. A third-party custodian is a company that keeps track of the IRA and completes the required reporting to the IRS in order to keep the money in a tax-deferred status.
“Fraud promoters can misrepresent the responsibilities of self-directed IRA custodians to deceive investors into believing that their investments are legitimate or protected against losses,” Beatty said. “The third-party custodian’s sole responsibility is to report information to the IRS and from the issuer to the investor.”
Investors with questions about third-party custodians of self-directed IRAs or other qualified plans should contact their state or provincial securities regulator. Contact information is available on the NASAA website here.
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Bob Webster | Director of Communications