Growth of self-directed IRAs increases risk of fraud

(October 30) The use of IRAs to fund business startups doubled between 2009 and 2011, and a similar class of “self-directed” IRAs investing in commodities and real estate grew to a $94 billion industry last year.

This is a disturbing departure from the traditional role and spirit of IRAs as conservative retirement accounts. Such activity, within IRS guidelines, has become a favorite tax shelter for sophisticated investors, notably as evidenced on Mitt Romney’s tax disclosures. But funneling IRA funds into cattle, gold bullion, risky equities and other exotic instruments has already led to fraud, misrepresentation of risk, and the loss of irreplaceable savings, with much more likely to follow.

(New York Times Dealbook section at dealbook.nytimes.com)