How much control do American Pension Services account holders have?

IRA holders may have become aware of the events at American Pension Services, an IRA provider in Utah.  For the last several months, while legal proceedings have been underway, the accounts there have been “frozen”.   This has meant that American Pension Services account holders have not had the ability to move their IRAs to another provider.  Traditional and Roth IRAs, as well as HSAs, are typically completely portable and account holders can move all or part of their account at will.

Unfortunately, for American Pension Services account holders, this control has been temporarily suspended by the court.  The timetable is uncertain but the expectation is that they will eventually regain the ability to move their account.  Given the alleged malfeasance at American Pension Services, account holders may well be looking for a new IRA provider.

Here is a list of the top 5 due diligence questions to help choose a self directed IRA provider:

1.  How often do my account assets and cash get balanced?  A daily balancing of cash and assets makes the discovery of any anomalies more likely.  It can protect your account from fraud and mistakes.

2.  Who is the custodian and what is their expertise?  Not all custodians have the manpower and experience to properly service an IRA that contains alternative assets.  Due diligence on the custodian can be a key to keeping your retirement savings safe.   Keep in mind that with some IRA providers, like New Direction, administration and custody are handled by separate companies. Your account may get more oversight and attention than with multiple levels of oversight and experience than with single entity providers acting as both administrator and custodian.

3.  What kind of account access do I have?  Reporting transparency is a characteristic that is part of many types of due diligence investigations.  Fast and accurate account access such as an online client access system that is updated daily gives you a tool to help you monitor your IRA. 

4.  Can I get a complete disclosure of fees?  Not all IRA providers have the same business model, particularly when it comes to how they make money.  Comparisons are not often “apples to apples”; so it is critical to get a full disclosure and to check for small fees that can add up.  Try these follow-up questions:  Do I have to pay for statements?  Do I get charged for each check my IRA sends out to pay a bill for one of my assets?  How much do you charge when I take a distribution?

5.  My self directed IRA strategy is _________________, how would that work with your business model?  Check to make sure the provider you are considering handles the asset types that you already have or may want to get into.  A single provider for all asset types, publicly traded and “alternative”, may save you a lot of time and energy over the years.

Alternative Asset Annuity Strategy

An attractive feature of an annuity is the predictable, periodic return.  For some, a less attractive feature over the past several years has been that their annuity has been tied to the stock market.  By using a self directed IRA, investors can enjoy tax-deferred investment growth and achieve periodic returns similar to an annuity without having to worry about the stock market.

Both Traditional and Roth IRAs can purchase “alternative” or hard assets while maintaining the tax benefits associated with that account type.  Some alternative assets provide consistent, periodic returns that mimic an annuity but are not driven by publicly traded securities.  Consider the three most common IRA alternative investments that can produce returns with the consistency of an annuity: rental real estate, private lending, and private equity.

An IRA (Traditional or Roth) is its own legal and financial entity, and it can own physical real estate. distribution schedule as needed.*
  The IRA-owned property can be residential, commercial, or agricultural, and all of these types of real estate can produce rental income.  The rent goes into the IRA and can then be distributed to the account holder at their convenience.  Not only can this rental income produce income like an annuity but there are two additional benefits.  First, the IRA not only gets the rental returns but it still owns the asset itself, which may be appreciating even as it generates rent.  Second, because the account is controlled by the account holder, he or she can make adjustments to the

An IRA can also be a lender.  These loans can be secured by collateral or unsecured.  The account holder finds the borrower, vets them, and negotiates the terms.  If the terms of repayment are such that the borrower periodically makes principal and/or interest payments to the IRA, the IRA holder could set up a distribution schedule that mirrors the payments.  In this way, the loan payments would act very much like annuity payments.

An IRA can also invest in a private company.  Usually called Private Equity, Private Placement, or Private Stock, the returns produced by the privately owned company or fund that you choose may be deposited in the IRA periodically.  And again, the IRA holder could set up consistent distributions.

In fact, the flexibility offered by self directed IRAs allows for almost any asset type to make periodic distributions.  And with an IRA, you, the account holder, are, largely, in control of when and how much income you choose to take.   If you like the idea of having your retirement savings pay you with regularity like an annuity but do not want to be tied to the stock market, use your New Direction IRA to achieve your goal.

* Traditional IRA holders must take required minimum distributions (RMDs) after age 70.5.