FAQ

Following are some frequently asked questions about self-directed IRAs.

What is the Purpose of these FAQs

The purpose of these FAQs is to educate you on your roles and responsibilities as the account owner, and the limited role of a self-directed IRA (individual retirement account) custodian as it applies to your account.  Please read these FAQs carefully.

What is a self-directed IRA?

A self-directed IRA is a retirement account that enables you to exercise your own discretion to select, invest in, and hold real estate, private equity, private lending, precious metals, and other diversified assets.  All investment decisions and directions in your self-directed IRA are made exclusively by you or a designated third party such as an Investment Advisor or Power of Attorney that you appoint.

What is a self-directed IRA custodian?

A self-directed IRA custodian is a custodian that Internal Revenue Code provisions require you to select to hold and administer your retirement assets until retirement age or an early distribution by you.  Unlike registered financial advisors and broker dealers, a self-directed IRA custodian does not offer its own investments, provide investment advice, legal or tax advice, promote or provide due diligence on investment sponsors or third parties or provide or any other guidance to you when making investment choices.  Rather, a self-directed IRA custodian performs the duties of a directed custodian and takes your instruction to invest.

What does a self-directed IRA custodian do?

A self-directed IRA custodian acts in the limited role of a non-discretionary administrator of your retirement assets.             A self-directed IRA custodian provides the following services for your IRA:

Ø  Processes and maintains an IRA agreement and forms you submit to request actions in the IRA

Ø  Accepts receipt of and records contributions, transfers, and rollovers from other IRAs/retirement plans

Ø  Receives and acts on your instructions to remit funds from the IRA to pay for investments you have selected

Ø  Receives and acts on your instructions to sell, withdraw from or liquidate investments held in the IRA

Ø  Holds originals or copies of documents such as subscription agreements, operating agreements, offering memorandum, promissory notes, certificates, and other evidence of the IRA’s ownership of investments

Ø  Receives and records income from the assets held in the IRA

Ø  Receives and acts on your instructions to distribute assets to you or to other retirement plans from the IRA

Ø  Provides you with statements reflecting transactions, funds, and assets held in the IRA

Ø  Performs tax reporting on IRS Forms 1099-R and 5498 as required by the IRS

What a self-directed IRA custodian doesn’t do?

A self-directed IRA custodian does not provide the following services:

v  Provide investment, tax, estate planning, or legal advice

v  Recommend or endorse investments

This means that, in acting as custodian of an investment you have selected, the self-directed IRA custodian does not recommend, endorse, or approve that type of investment

v  Recommend or endorse investment advisors or sponsors

This means that, when a custodian communicates with or acts on directions from an investment advisor or sponsor selected by you, the self-directed IRA custodian is not recommending, endorsing or approving of that advisor or sponsor.  The custodian is also not affiliated with or an agent of that advisor or sponsor.

v  Determine the fair market value of account investments

This means that a valuation submitted to the self-directed IRA custodian by the investment sponsor is not a warranty or representation by the self-directed IRA custodian that the reported value is accurate

v  Perform due diligence on any investment or investment sponsor that you select

v  Determine the safety, prudence, or suitability of any investment that you select for the IRA or for yourself

v  Have an obligation to decision whether a transaction would be deemed a Prohibited Transaction as outlined in Internal Revenue Code section 4975 (26 USC § 4975).  Custodians do have the right to reject an investment that the custodian becomes aware of which is or could be a Prohibited Transaction.  The responsibility lies with the account owner to ensure the transaction is acceptable in an IRA.

Duties of an Account Owner

Self-Directed IRAs provide the account owner the opportunity to make his/her own investment decisions and invest in a variety of asset classes.  The follow responsibilities fall on the account owner:

• Direct his/her own investment
• Complete their own due diligence of any investment opportunity, sponsor, advisor or other third party with which the account owner wishes to work
• Understand the risks associated with their investments and retain any necessary legal, tax or financial advisor to assist with this understanding
• Provide annual valuations to the custodian for all assets held in your account with your custodian
• Ensure that all assets can be legally held in an IRA under IRS rules and do not violate the Prohibited Transaction rules
• Monitor your accounts and review your account statements and all other required tax forms and custodian forms on a regular basis
• Take the necessary required minimum distributions under current law
• Provide direction to the custodian for all investments and actions as requested by custodian

What should I do before I make an investment in my IRA?

Before you invest, it is prudent to perform your own thorough research and due diligence on the risk profile of an investment and the track record of the investment sponsor.  Web sites such as ftc.gov, sec.gov, finra.org, www.nfa.futures.org and bbb.org maintain free and valuable resources.  In addition, it is also prudent to consult with your tax advisor or attorney for specific questions about your investment and any tax or legal implications.