Everybody wins, right?
Their defense mechanism? Pretend self directed IRAs.
Many investment firms are now naming their IRA accounts “self directed”. These are usually plans which allow you to choose which stocks, bonds, and mutual funds your IRA can be invested in. Sometimes they will offer REITS because they know interest in real estate investment is growing. See “CFPs: Bad Guys?“
How can you tell the difference between really self directed and pretend?
First off, see if your IRA custodian is promoting specific investments. A real self directed IRA account is held by a passive custodian. This means that the custodian cannot recommend any investment, investment product, or investment strategy.
TAKE THE TEST:
Question #1: My IRA custodian…
(A) DOES NOT recommend investments
(B) DOES recommend investments
Question #2: My IRA custodian…
(A) Allows ALL legal investment transactions including direct investment in real estate and private equities
(B) DOES NOT allow investments such as real estate and private equities
If you answered (B) to either question, your IRA account is not really self directed. If you answered (A) to both questions, your IRA is self directed. Simple enough?