New York, NY securities attorney Jenice L. Malecki talks about what is a self-directed IRA and how does it differ from a traditional IRA. She informs that self-directed IRAs can seem appealing because they allow investors to manage their money and make independent investment decisions. However, the very feature that gives them flexibility—being “self-directed”—also places full responsibility on the account holder. Unlike traditional accounts, there is typically no broker or supervisor overseeing the investments, so failures to supervise cannot be claimed.

She notes that while wrongdoing can occur in certain circumstances, if an investor independently chooses a risky or fraudulent investment, such as a Ponzi scheme, it is often difficult to hold anyone else accountable. Custodians generally do not vet these investments or perform due diligence, meaning the investor bears full responsibility for the choices made within the self-directed IRA.