March 21, 2023

With Great Risk, Comes Great Reward: Self-Directed IRA Investor Alert Response

Key Points 

  • The SEC, NASAA, and FINRA recently issued an alert to warn investors of the potential risks of Self-Directed IRAs.

  • Although there are potential risks, Self-Directed IRAs can offer greater rewards. Benefits include the ability to diversify your portfolio, gain control of your investments, and achieve long-term stability.

  • Madison Trust’s Specialists complete rigorous training and are equipped to answer your questions about self-directed investing.

Recently the SEC Office of Investor Education and Advocacy, the North American Securities Administrators Association (NASAA), and the Financial Industry Regulatory Authority (FINRA) warned investors of the potential risks of Self-Directed IRAs. Their main claim was that although a Self-Directed IRA allows investment in a broader portfolio of assets than standard IRAs, these assets are potentially riskier.

Retirement planning paper labeled “Self-Directed IRA” next to a calculator, pen, dollar bills, and glasses.

Like any investment, alternative assets may involve risk. However, savvy investors recognize that higher risks can lead to higher rewards. Let’s break down some highlights of the investor alert.

Self-Directed IRA Custodians Do Not Screen Investments Purchased by an IRA

As stated in the alert, the sole responsibility of a Self-Directed IRA custodian is to administer your retirement account and hold custody of the IRA’s assets. Just as banks typically hold stocks, bonds, and mutual funds for their investors, Self-Directed IRA custodians hold alternative assets such as real estate, private placements, precious metals, promissory notes, and more.  

Custodians cannot sell investment products, give investment advice, evaluate an investment’s legitimacy, or verify the accuracy of an investment’s financial information. For more details, please visit FAQs about Self-Directed IRA custodians

Self-Directed IRA investor conducting due diligence on his alternative investments to ensure their legitimacy.

It is the Self-Directed IRA account holder’s responsibility to conduct due diligence to understand the investments in their account. This task does not deter most self-directed investors, since they are do-it-yourselfers and thrive on the freedom, power, and flexibility of this retirement account.

Self-Directed IRA Custodian: True or False Infographic

Some Tax Rules Differ for Self-Directed IRAs

Like other financial accounts, Self-Directed IRAs have their own IRS tax rules. Madison Trust’s website has free, educational resources that discuss topics such as what assets can be held and other Self-Directed IRA rules.

Investor on the computer looking at taxes with icons of “Tax”, tax forms, dollar bills, calculator, and a globe hovering over the keyboard.

Stay Alert To Avoid Fraud

Today’s technology-focused society has taught us to be on the lookout for fraud during everyday activities like purchasing a product, banking, investing, and even checking our emails. Similar to any important purchase, it is essential to ask questions and consult a professional before making an investment decision.


Just like typical brokerage accounts, the fees for Self-Directed IRAs vary based on the custodian. For a transparent look at Madison Trust’s fees, please refer to our fee schedule.

Benefits of a Self-Directed IRA

Just as it is important to be aware of all the Self-Directed rules, it is also crucial to recognize the benefits of Self-Directed IRAs.

Icon of a dollar sign and arrows pointing out in all different directions to signify the benefit of diversifying your retirement investment portfolio in a Self-Directed IRA.

Diversified Portfolio

Self-Directed IRAs allow investors to diversify their retirement portfolio with alternative investments that are typically not offered at standard brokerages such as real estate, promissory notes, private businesses, etc.

Icon of an increasing trend bar graph to signify the benefit of investment control and risk/reward of a Self-Directed IRA.

Investment Control

Self-Directed IRA investors have the unique opportunity to gain control of their investments by directing the custodian to invest in the asset of their choice.

Icon of a scale showing even sides to signify the benefit of long-term stability of investment income that is possible with a Self-Directed IRA.

Long Term Stability

Self-Directed IRAs allow investors to hedge against the volatile stock market and invest in products that have a steadier and more reliable revenue stream.

Conclusion: Let's Tie It All Up

Although the investor alert showed possible concerns about Self-Directed IRAs, informed investors know that without risk, there is no reward. The Self-Directed IRA’s benefits of portfolio diversification, investment control, and stable growth of retirement savings outweigh the risks.  

Young, successful Self-Directed IRA account holders standing with a sunset background, holding coffee, and looking at a tablet with their self-directed investing strategy on it.

Do you have questions about Self-Directed IRAs? Schedule a free discovery call with Madison Trust’s Self-Directed IRA Specialists today!

Disclaimer: All of the information contained on our website is a general discussion for informational purposes only. Madison Trust Company does not provide legal, tax or investment advice. Nothing of the foregoing, or of any other written, electronic or oral statement, or communication by Madison Trust Company or its representatives, is intended to be, or may be relayed as, legal, tax, investment advice, statements, opinions, or predictions. Prior to making any investment decisions, please consult with the appropriate legal, tax, and investment professionals for advice.

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