Risks of Self Directed IRAs

Risks of Self Directed IRAs

Service providers like custodians and real estate gurus gush with a seemingly endless list of praise and the pros of self directed IRAs. There never seems to be a negative or “con.” So, what are the risks?

  • Complex rules on types of investments IRA can hold (and is prohibited from holding)
  • Custodian and processing fees can be expensive
  • Assets often illiquid and hard to value
  • Risk of violating IRS rules and disqualifying entire IRA’s tax deferred/advantaged status (triggering penalties, taxes and interest)
  • Limitations on personal or family use of certain assets
  • Limitation of personal benefit or compensation IRA account holder may derive from asset/investment IRA is investor in
  • Risk of fraud (especially with many private companies)
  • Risk of malfeasance with smaller service providers

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