The Wall Street Journal reported today that two self directed IRA custodians are facing a major lawsuit. Entrust and Equity Trust are being accused of not performing due dilligence when approving financial advisors, as well as outright fraud by misrepresenting individual client accounts. However the dust eventually settles, one thing remains clear: it behooves an investor to know what the options are. With the right choices, you can protect yourself from wondering what’s going on with your money. Self directed IRAs come in one of two flavors: a Trust model and a Checkbook Control model. In the Trust model the custodian retains most of the power. The custodian not only get to hold the funds and control access to them, but it also gets final say in any transaction or investment decisions. If you think that sounds scary, you’re absolutely right. Anytime you allow a third party to be in control of your money, you obviously run the risk of that party taking advantage. Safeguards are ineffective, and you’re left depending upon the goodwill and trustworthiness of the institution. Lots of luck with that. The Checkbook Control model was created to address these problems. With a Checkbook IRA, the IRA funds are held in a checking account and only one person has access to them: the investor himself. This enables the investor to make all investment and transaction decisions, as well as bar access from any unrelated parties. Thus, the Checkbook model avoids all those sleepless nights wondering what’s happening with your money. Unfortunately we have to live in a world of caveat emptor. However, not all hope is lost. With proper decision making you can still get to where you want to be.
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