December 6, 2021

Avoiding Scams in a Self-Directed IRA Part 1 – Education and Red Flags

Growing your Self-Directed IRA can be challenging even in the best of conditions. You have to evaluate potential investments, manage existing assets, and make sure that all the legal paperwork is maintained. What you don’t want to worry about is immoral scammers who are looking to make a fast score. Unfortunately, this kind of crime is a reality and it’s pervasive enough that investors need to be educated. The good news is that education doesn’t have to be extensive. Putting in even a small amount of time can reap great financial rewards. You may not become the biggest expert in scams that can affect a Self-Directed IRA, but you should be able to become proficient enough to spot the warning signs. Then you can do the research necessary to find out if what’s being offered is a legitimate investing opportunity. 

Where to find educational resources about Self Directed IRA scams 

Not surprisingly, one of the best places to find out about Self Directed IRA scams (and how to protect yourself from them) is the U.S. government. The government has a positive push in that it’s tasked with protecting its citizens. Perhaps more importantly, it is also incentivized to not want to deal with the aftermath of a scam. The collective hours of manpower and other resources that are dedicated to dealing with scam victims and pursuing the scammers would be better utilized in positive projects. Furthermore, when scammers are allowed to proliferate, it breaks down the basic trust in institutional programs. This can destroy the communal ethic which allows Americans to benefit from these large-scale programs. 

A number of U.S. government agencies offer specific information relating to identifying scams, staying safe, and what to do in case somebody fell for a scam. The Federal Trade Commission offers solid consumer-level advice on avoiding scams and how to report them. The IRS also provides extensive scam information, and, as one would guess, it is primarily focused on taxes. However, what is most relevant for Self-Directed IRA investors is the information provided by the Securities and Exchange Commission. The SEC offers a treasure trove of pertinent advice on their public facing website  

Today we will detail some of the red flags associated with scam promotions, and then we’ll dig down deeper into specific areas of concern for Self-Directed IRAs. 

Red Flags For Self-Directed IRA Scams 

The reason why Self-Directed IRAs are particularly susceptible to scams is because the account holder has more leeway in terms of where to invest the funds. This is obviously of great value when investing in solid assets that are not available in market exchanges, but it comes with the concurrent danger of being persuaded to place the funds somewhere unsafe. With that in mind, Self-Directed IRA investors should be aware of the marketing techniques that scammers often use. Here are some of the more prominent red flags associated with scams which should tell an investor it’s time to investigate the offering much more carefully. 

  • If it sounds too good to be true... 
    Most investors’ dream investment would be one that requires little effort on their part, makes boatloads of money, and does so without any risk. Unfortunately, that’s not how most investing works. Normally (in the Self-Directed IRA arena) there is a need for education and involvement, the profits can be consistent but not often stratospheric, and every investment has the potential for at least some risk. However, that doesn’t stop investors from dreaming about the “perfect” investment and it doesn’t stop scammers from using language that buys straight into that dream. Watch out for copy like “all you have to do is...”, “just by installing this app...”, and “guaranteed returns”. The SEC has compiled a number of professionally made advertisements that utilize this language and you can find them here. You’ll be amazed at just how convincing some of these commercials can be. 
  • Time sensitive investment 
    This is a tricky one as it could occasionally happen that an investor can run into an opportunity that is time sensitive. Further, most people have already been groomed by the incessant media advertisements which promote the sale that is “going on now and you don’t want to miss it!” When dealing with Self Directed IRA funds, it pays to be much more circumspect. The large majority of investment opportunities that are blaring “act now!” are usually fraudulent in nature. When a company or investment sponsor is promoting a legitimate investment, proper timing is already incorporated into the system. The sponsor knows how long it will take to raise a certain amount of funds and they also know that conscientious investors need time to do research. Thus, they offer it far enough in advance to allow these things to happen. If an investment sponsor is pushing you to move quickly, it’s likely just a ploy to keep you from doing a proper analysis. Stay away from these kinds of pitches and your Self-Directed IRA will be happier in the long run. 
  • The road to legitimacy 
    In the pitch for the investment, how is the investment sponsor establishing credibility? Legitimate sponsors will usually push the people or the firm managing the asset so that potential investors will buy into predetermined legitimacy or research the names mentioned. They are also happy to provide all the legal information necessary to conduct any due diligence. In many scams, this information will be absent. Instead, legitimacy will be built via a variety of other methods. These can include onscreen visuals of “actual” accounts, charismatic actors playing various company roles, and the immense number of people who have already seen success. 
  • The proverbial free lunch 
    Reciprocity is a basic element of human nature and scammers take full advantage. When they pitch your Self-Directed IRA a potential investment, they will often gift you with something of value. That could be a free gold coin, a nice lunch, a free vacation, or something else that creates a positive feeling. The important thing to remember is that the scammer is not giving you a gift for nothing. They’re setting the stage so that you should feel internal pressure to invest some of your Self-Directed IRA funds in their asset. Most legitimate investment sponsors would never resort to such gimmicks. If you do see a “free lunch” being offered, it’s usually best to stay away and instead explore other investments. 


Keeping your Self-Directed IRA safe from scams mostly comes down to just being aware. Get educated, understand the red flags, and invest in the assets that make sense to you. 

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