Maintaining financial security has never been tougher. Maybe you’ve worked hard all your life, socking away money in your traditional IRA and 401(k). Still, there are factors still threatening your retirement plans.
At the moment, one of those threats is the declining value of cryptocurrency.
As many of us approach retirement, many are nervous about where they are sitting financially.
For these reasons, people are turning to self-directed IRAs, which are savings accounts that allow for alternative investments. You can also invest in real estate, farm land, horses, livestock, water rights, and physical metals to name a few.
However, thanks to the cryptocurrency boom, virtual currencies are now an option, too.
But it doesn’t look like the U.S. SEC supports that investment opportunity
According to the SEC, just because investors can use their retirement funds to invest in cryptocurrencies doesn’t mean they should.
The commission warns of fraud in digital assets and initial coin offerings (ICOs).
According to the SEC, these can include:
Misrepresentations Regarding Custodial Responsibilities – Fraudsters may misrepresent the duties of self-directed IRA custodians to deceive investors into believing that their investments are legitimate or protected against losses.
Exploitation of Tax-Deferred Account Characteristics – Self-directed IRAs are tax-deferred accounts that carry a financial penalty for prematurely withdrawing money before a certain age. The prospect of an early withdrawal penalty may encourage an investor to take a passive approach to managing the account, which may result in a lesser degree of oversight than a managed account might receive, allowing a fraudster to perpetrate his fraud longer.
Lack of Information About Alternative Investments – Self-directed IRAs allow investors to hold alternative investments that, unlike publicly traded securities, may have limited financial and other information available.
While they acknowledge that such investments can be “fair and lawful,” they “may not provide complete or accurate information to aid investors in making informed decisions.” Also, the SEC warns that holders of self-directed IRAs are more at risk because custodians of these funds “typically have only limited duties to investigate the assets or the background of the promoter.”
How to Protect Your Money
When it comes to cryptocurrency retirement funds, verify all information received, avoid unsolicited investment offers, and always ask questions. You must be wary of “guaranteed” returns, and consider consulting with a professional.