SEC and FINRA warn self-directed IRA investors about inherent dangers

Recent News, Self Directed IRA

On February 7, 2023, the SEC and FINRA published overlapping warnings to the self-directed IRA investors. The SEC has done this in the past, and the new warnings appear to be sort of a “reminder” that self-directed IRAs raise some unique concerns for individual investors.

I absolutely agree that investors that are unaware of the way in which self-directed IRAs function (and the specialized federal tax rules that apply going forward) are much more susceptible to problems within this area. As the name implies, “self-directed” accounts put the responsibility of investment decisions, compliance, and avoiding fraud squarely on the shoulders of the IRA’s Accountholder.

Each individual needs to decide whether the complexities of self-directed IRAs are worth the risk – when compared to the potential for gains that can come from non-traditional investments that are not otherwise accessible within IRAs held at large brokerage firms.

The SEC warning can be found here:

On a related point, I was interviewed by a reporter for Financial Planning related to an article he wrote regarding the SEC/FINRA warnings. That article can be found here:

Although I realize that this sounds like a “sales job” (coming from a tax attorney that specializes in counseling self-directed IRA investors), but it remains critical for self-directed IRA investors to receive proper legal and tax education before they push forward with setting up and/or investing a self-directed IRA (or IRA-owned LLC). It’s also critical for self-directed IRA investors to due extensive due diligence regarding the investments themselves.