September 27, 2021

How To Protect Your IRA From Scams

IRAs, and especially Self Directed IRAs, require account holders to be vigilant in investment choice. This is because these kinds of retirement plans are choice destinations for scammers and con men. IRA accounts possess a sizable amount of funds and the account holder is actually looking to entrust those funds with somebody else. This is a gilded invitation for unscrupulous individuals who are looking to take advantage. If your IRA investments are limited to one of the big brokerages, this won’t be much of an issue. (That’s not to say that every brokerage employee is honest. Rather, in that scenario, any corruption will tend to be systemic and beyond the reach of the account holder.) This is more of a problem for those who choose non-brokerage investments for their IRA. Common examples include private placements, real estate, and promissory notes. In these scenarios, the onus is on the account holder to do the proper research. 

Does the IRS Approve IRA Investments? 

The IRS has explicitly stated that they never approve specific IRA investments. This means that if you ever see language promoting an investment as “approved by the IRS”, it should definitely be considered a red flag. Here are some common descriptions that the IRS says should not be taken at face value: 

  • “This investment has been approved for your IRA.” 
  • “You can use your IRA for this investment by filling out the forms in the attached information package, and our agent will take care of the rest.” 
  • “This has been reviewed by the government.” 
  • “This investment is so safe you can use it for your IRA. “ 

The IRS does approve IRA custodians and sponsors to make sure that they are in full legal compliance. However, this never extends to the investments themselves. 

Too Good To Be True 

There is no way to accurately predict how much profit will be made on a given IRA investment. However, that doesn’t stop investment promoters from using language that promises the world. The bigger the payback, the more concern it should invoke in the IRA investor. It’s hard not to take a chance on assets that make the following claims. However, for the most part it’s pure hyperbole and it’s best to stay away. 

  • “5 stocks that will have double digit returns in the next six months.” 
  • “Will stock XZY be the first trillion dollar stock?” 
  • “This is the no-risk asset that is doubling investors’ money.” 
  • “Get in early with this company that will be the next Amazon.” 
  • “This foreign investment is going to be bought soon by a major American company.” 

But I Heard About It On TV! 

Most IRA investors are not seasoned financial professionals, which means that they get most of their information via mainstream media. This is a problem because it’s actually quite easy for people to portray themselves as financial experts and offer an “honest” opinion. This happens regularly, and even though the perpetrators normally get caught in the end, it’s not before having done a lot of damage. If you’re looking for a solid investment for your IRA funds, don’t take a recommendation heard on media at face value. 

The SEC has compiled a list of things to watch out for to avoid scams being perpetrated over the radio. They include: 

  • Lack of disclosures – Usually the radio host is being compensated by the financial professional who is touting an investment. Lack of any disclosures is a red flag. 
  • Pressure to buy now – While it’s true that many investments can be time sensitive, vocal proclamation of the fact usually points to a profit motive for the spokesperson. 
  • Complex strategies - One way to avoid awkward questions is by pitching an investment asset that is very complex. Most legitimate investments opportunities are easy to understand and don’t require you to rely on the sponsor alone. 

The BBC recently reported about scam advertisements that can appear in social media. In the context of an IRA, these can take the forms of ads touting a great investment. Social media giants like Google and Facebook often face a negative pressure to remove scam ads because it those very ads which drive their revenue. Although they do have procedures in place for reporting scams, these can take time to process and not every ad gets removed. In the modern day, it is very easy to put together a professional looking website and then run online ads targeting IRA account holders. The mere presence of an online financial ad, even if it’s on a reputable website, in no way gives any guarantee to its legitimacy. 

Researching an IRA Investment 

If you see a potentially interesting investment for your IRA, how can you research it to make sure that it’s legitimate? The first thing you can do is search online databases to find out about the investment sponsor. If an individual or media outlet is making financial recommendations, they should be registered with the SEC. Here are databases where you can research people, firms, and funds: 

Another simple approach to determine the legitimacy of an IRA investment is just to ask questions.  The SEC has published a pamphlet that covers the questions you should be asking. These include: 

  • Is this investment registered with a government securities agency? 
  • Will I be swamped with fees? What are the specific fees for buying, maintaining, and selling? 
  • How long has the company been in business? How experienced is the management team? 
  • Does the company have any annual reports or other sources of information? 

Keep in mind that a financial professional may also be part of an IRA scam’s workings. Although the large majority of financial professionals are honest and will try to protect you to the best of their ability, the few who aren’t can cause a large loss. Here are questions that you can direct to the financial professional that you are dealing with. 

  • Are you registered? Have you ever been disciplined by a government or financial agency? 
  • Can you provide me with referrals from some of your long-term clients? 
  • Are you being incentivized in any way to sell this investment? 

What happens if your IRA is the victim of a scam? 

The first thing to do is to contact the SEC. They will get the pertinent information from you and tell you what your options are for moving forward. They can be reached online at , or by phone at (800) 732-0330. 

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Speak with a Self-Directed IRA Specialist.
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