New York Estate Planning & Elder Law Blog
The Securities and Exchange Commission (SEC) recently issued a warning to consumers about the risk associated with adding cryptocurrencies to so-called self-directed individual retirement accounts. These types of unregistered IRAs allow individuals to invest their nest eggs outside of the stock market and bond market and often incorporate holdings in real estate, private mortgages, precious metals, and more recently cryptocurrencies like bitcoin.
In an investor alert issued by the SEC, regulators warned that the agency has the power to oversee traditional IRA investments like stocks, bonds and mutual funds but lacks oversight of self directed IRAs. Although spokespersons for the SEC did not mention a specific scheme or incident to prompt the alert, the agency nonetheless felt it was important to issue the statement to warn consumers about the risks associated with the accounts.
The SEC also recently joined the Association of International Certified Professional Accountants in pointing out that this type of fraud associated with self directed IRAs can pose a unique opportunities for criminals to perpetrate elder abuse. With questions about the solvency of Social Security, rising health care costs, and other economic uncertainty may lead seniors and adults planning for retirement to consider these type of risky, self directed IRA accounts over traditional investment methods.
Often times, scammers selling investment platforms will promise returns that far exceed market norms, which should be an indicator that the offering is a fraud. However, these promises also tap into the fear that investors have over the future of their retirement savings. Cryptocurrencies in particular are subject to significant price fluctuations that the custodian of the self-directed IRA is not responsible for and may even encourage rash investment decisions during volatile times in cryptocurrency markets.
To help investors make smart decisions with self-directed IRAs, the SEC has advised customers to take the following steps and protect their investments. First, find a trusted securities broker to act as the custodian of the account and understand the types of investments they can make without incurring harmful tax consequences. Next, consumers need to do their homework to understand the investment they are making, verify the names of the investment promoter.
Finally, consumers need to read all of the materials provided and involve the advise of an accountant, lawyer or financial planner to independently evaluate the investment. In the event customers feed they may be the victims of fraud, the SEC encourages individuals to contact the SEC complaint center and file a report.