Individuals have many choices from whom to solicit assistance in establishing a self-directed IRA or 401K. Typically, the prospective client looks at three types of company structures to assist them in their efforts to self-direct: custodians, administrators and facilitators. Of these three, custodians and administrators are, to the naked eye, almost identical in function. However, both are very much different than the facilitator. Many individuals will employ the services of a custodian and administrator because they incorrectly believe that these firms actually look out for their best interests and ensure that the client does not enter into a prohibited transaction with the self-directed investment.
Nothing could be further from the truth!!
Now, that being said, it is not their role to do this, but many people believe they will do this. Unfortunately, many people who self-direct feel as if they have no one else to turn to with assistance on this matter.
Okay, why believe me?! As Mom (or was it Dad??) always said, “the proof is in the pudding”. Let’s actually take a look at a real contract and agreement between a prospective client and an administrator (custodians also have the same type of agreement) for a self-directed IRA. As they say on TV, names have been eliminated to protect the innocent! So as to make sure that you, the reader, don’t fall asleep, I will include the most pertinent parts of the agreement. This is the disclaimer language that the prospective client must agree to, and states in part:
“I understand that my account is self-directed and that the administrator and/or trustee or custodian do not review the merits, appropriateness and/or suitability of any investment in general, or in connection with my account in particular. I acknowledge that I have not requested that my administrator provide, and administrator has not provided, any advice with respect to the investment directive set forth in this agreement. I understand that neither the administrator nor trustee or custodian determine whether this investment is acceptable under the Employee Retirement Income Securities Act (ERISA), the Internal Revenue Code, or any applicable federal, state or local laws. I understand that is is my responsibility to review any investments to ensure compliance with these requirements.
I understand that neither the administrator nor trustee or custodian is a “fiduciary.”
I also understand and agree that the administrator and/or trustee or custodian will not be responsible to take any action should there be any default with regard to this investment.
I am directing you to complete this transaction as specified above. I confirm that the decision to buy this asset is in accordance with the rules of my account, and I agree to hold harmless and without liability the administrator and/or the trustee or custodian of my account.”
Okay, there you have it. Now in defense of the administrator and/or custodian, their role is NOT to advise or protect you should you make a prohibited transaction related to your self-directed IRA or 401K investment. However, this begs the question:
IF A THIRD PARTY ENTITY IS NOT TAKING RESPONSIBILITY
1) Why would you want to pay them annual fees for “holding” your money and processing investment requests?
2) Why would you want to wait for them to process your request for YOUR funds?
3) Why would you want them to keep the majority of interest earned on your non-invested funds?
4) Why wouldn’t you want to fully control YOUR money and YOUR investment choices without having to ask permission of this outside entity?
WHY WOULDN’T YOU DO IT YOURSELF??!!
Make no mistake, you do need to establish your plan in a compliant manner with IRS and, if applicable, Department of Labor and ERISA regulations, but if you could LEGALLY establish your plan, take responsibility for your investments, do this on a cost-competitive basis and have:
CHECKBOOK CONTROL
of YOUR retirement funds at a bank of YOUR choice. The question really should be: WHY WOULDN’T YOU?!
Related posts:
- Self-Directed IRAs/401(k)s – The Maze of Custodians, Administrators and Facilitators
- Some Facts and Definitions About Self Directed IRA’s
- The Self Directed IRA Is Often Misunderstood – Some Facts
- Your Self-Directed IRA is Possibly the Worst Mistake You Made?!
- Some Basic Facts About the Self Directed IRA
About John Park
Recent Comments