Many retirement models involve a passive relationship between investors and administrators, while self-directed retirement investing incorporates direct participation by the account holder. In this way, a self-directed investment strategy more closely resembles a non-retirement investment, but processes can become a little more complex once IRA providers and other such entities enter the fold. Though it may not always seem like it, a multi-faceted investment system actually serves to protect consumers rather than obstruct them. If one entity were to report to the IRS, buy and sell your IRA assets, and maintain physical custody of your holdings, your retirement account may be in jeopardy if that entity goes out of business. A group of companies, on the other hand, can help pick up the slack to protect their mutual clients should one member of the group disappear. Let's examine the group of companies that may be involved with self-directed IRAs and alternative investment options.
Per the Internal Revenue Code (IRC), all individual retirement plans must be in the custody of a trust company, bank, or a similar qualified financial institution. These companies are responsible for maintaining IRC compliance, protecting sensitive client information, and executing accurate reporting to the IRS. As your IRA custodian, New Direction Trust Company strives to uphold high standards of excellence in these areas.
If we were somehow unable to perform our duties as custodian, another trust company and/or IRA provider would inherit the impacted accounts. In 2014, a self-directed IRA provider similar to ours went out of business, affecting thousands of clients and their retiremennt accounts. To avoid the liquidation or distribution of those accounts, New Direction Trust Company (known as New Direction IRA at the time) assumed administrative duties for the portfolio of clients. Upon completion of the transition, our new clients arrived with their holdings largely intact.
For investments like real estate or precious metals, a broker or dealer would sell the physical asset to your IRA or 401(k). Should your relationship with a broker or dealer end, there will be others willing to work with you regardless of your transaction history.
Private lenders sometimes utilize retirement investors as sources of capital replenishment. Investors may earn a percentage of interest from issued loans, or they may yield dividends from a private equity agreement with the lending company (or any company with privately traded positions). These relationships are less interchangeable because the health of your asset is directly tied to the success of the company. As with any investment strategy, comprehensive research into such companies can help determine your comfort level and mitigate the risks involved.
Depending on the investment, a third party may have physical possession of your retirement holdings. For instance, IRA-owned precious metals must be stored at an approved depository. Private stock certificates, real estate titles, or original loan documents may be stored in a vault controlled by New Direction Trust Company. In either case, your tangible holdings would be transferred to another qualified entity should your physical custodian go out of business.
Interacting with multiple companies may seem less convenient than other retirement avenues, but you’ll always benefit from open and thorough communication with anyone you intend to work with. Self-directed retirement allows you to invest in what you know, and your direct contact with any applicable entities can enhance your due diligence research. For more information about self-directed investing, please don’t hesitate to contact our team at 877-742-1270 or firstname.lastname@example.org.