Self-Directed IRA: Risks & Drawbacks to Consider

Using self-directed IRAs can be a very attractive proposal for many investors. While they provide you with a lot of flexibility, they do have some drawbacks as well. Here are a few of the downsides of investing in a self-directed IRA.

Ignore Experience

One of the big drawbacks of using a self-directed IRA is that you will be ignoring wisdom that a good custodian can provide. IRA custodians are usually very experienced in the market and in the area of retirement planning. When you make all of the decisions yourself, you are basically ignoring a potentially great asset. Unless you are very experienced in the investment market, you will usually end up making many mistakes along the way. 

Invalidate IRA

There are certain investments that can not be utilized for an IRA. For example, you can not invest in life insurance, collectibles, or anything that would personally benefit you. When you utilize the help of an IRA custodian, they can keep you away from any dealings that would invalidate your IRA. If an investment in your IRA is deemed invalid, you could potentially be in trouble with the IRS. You could have to pay penalties and taxes on the money that you have in your IRA.