Traditional retirement account types provide a passive relationship between investors and administrators, while self-directed retirement investing involves contact with multiple entities. In this way, a self-directed investment strategy more closely resembles a personal investment, but confusion can occur when IRA providers join the process. Ultimately, a multi-faceted investment system serves to protect consumers. If an entity reports to the IRS, buys and sells your IRA assets, and maintains physical custody of your holdings, your retirement account may be in jeopardy if that single entity goes out of business. A group of companies with specialized functions allows companies to protect their mutual clients
Per the Internal Revenue Code (IRC), all individual retirement plans must be in the custody of a trust company. These companies are responsible for maintaining IRC compliance, protecting sensitive client information, and executing accurate reporting to the IRS. If you’re a client of ours, Mainstar Trust is the Custodian of your retirement account. New Direction IRA—with the same regulatory responsibilities and standards of excellence as Mainstar Trust—provides administrative services on behalf of the Custodian.
If one or both companies were somehow unable to perform their duties, another trust company and/or IRA provider would inherit the affected accounts. A company similar to ours, with Mainstar Trust also serving as Custodian, closed their doors in 2014. To avoid the liquidation or distribution of those accounts, Mainstar asked that New Direction IRA assume administrative duties for their 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 will sell the physical asset to your IRA or 401(k). Should your relationship with this individual or entity 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. If you’re investing in precious metals, they must be stored at an approved depository. Private stock certificates are stored in a vault controlled by New Direction IRA, so a third party may not always be a factor. 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 will contribute to your due diligence process. For more information about alternative investment options, please don’t hesitate to contact our client relations specialists.