In an effort to inform investors about common fraudulent activities involving individual retirement accounts (“IRAs”), the North American Securities Administrators Association (“NASAA”) has issued an Advisory on third-party custodians of self-directed IRAs and other qualified plans. The advisory was issued to describe the roles and responsibilities a third-party custodian of a self-directed IRA has and to hopefully dispel some of the common misconceptions investors have about third-party custodians. In particular, NASAA warns investors that IRA custodians’ duties are limited to report information to the IRS, and such custodians do not provide any assurance that the IRA owner’s investments are protected against loss.
When creating an IRA, an investor must find an IRS-approved custodian for the account. Custodians are typically banks or brokerage firms. Once the account is opened, investors can deposit funds into the account and invest in opportunities available through the custodian. With a self-directed IRA, the investor has full control over what the funds in the account are invested in, unlike mutual funds or other types of savings accounts.
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