Compliance Blog

Nov 08, 2023
Categories: Consumer Lending

Going in Style: Self-Directed IRAs

Are some of your credit union members nearing retirement age and are absolutely against the idea of robbing a financial institution? That’s wonderful. Just a word of caution, if your members look like any of the men below, you may want to hire extra security:

GIS bench

Securing one’s future is a very important part of life. Luckily, it appears that federal credit unions can act as custodians of self-directed IRAs. While self-directed IRAs are similar to the Roth or traditional IRA, the account holder of the self-directed IRA has the ability to invest in various ranges of investments.

GIS gif

That’s right fellas. No need for your Rat Pack disguises when visiting your local federal credit union. I love it when crime is averted.

NCUA Authority

It may be easy to forget that federal credit unions have some of the same investment opportunities, normally associated with banks. Self-directed IRAs are not exclusive to banks. Part 724 of NCUA regulations permit FCUs to act as custodians so long as certain conditions are met. The self-directed plans regulation states:

“A federal credit union may facilitate transfers of plan funds to assets other than share and share certificates of the credit union, provided the conditions of § 724.1 are met and the following additional conditions are met:

(a) All contributions of funds are initially made to a share or share certificate account in the federal credit union;

(b) Any subsequent transfer of funds to other assets is solely at the direction of the member and the Federal credit union exercises no investment discretion and provides no investment advice with respect to plan assets (i.e., the credit union performs only custodial duties); and

(c) The member is clearly notified of the fact that National Credit Union Share Insurance Fund coverage is limited to funds held in share or share certificate accounts of NCUSIF-insured credit unions.”

Now that we understand that FCUs have general authority to act as trustees for self-directed IRAs, who thinks they are subject to limitations?

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This NCUA opinion letter discusses that self-directed IRAs may be on the table for prospective retirees, however, FCUs should steer clear of having to register as broker-dealers:

The authority for FCUs to act as trustees or custodians for self-directed IRA and Keogh accounts has appeared in NCUA regulations since 1990. 12 C.F.R. Part 724.

Our regulation does not expressly authorize the use of an omnibus account with a broker-dealer, but directs FCUs to comply with the requirements of agencies with jurisdiction over IRAs. It states:

All funds held in a trustee or custodial capacity must be maintained in accordance with applicable laws and rules and regulations as may be promulgated by the Secretary of Labor, the Secretary of the Treasury, or any other authority exercising jurisdiction over such trust or custodial accounts. The Federal credit union shall maintain individual records for each participant which show in detail all transactions relating to the funds of each participant or beneficiary.”

You may want to consult with counsel on how to best implement this information and to avoid violating applicable federal and state laws.

Also, please note that starting next week, our Compliance blogs will publish only once a week on Wednesdays, until further notice.

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About the Author

JaMonika Williams, Regulatory Compliance Counsel, NAFCU

JaMonika Williams, NAFCU-Regulatory-Compliance-Counsel

JaMonika Williams joined NAFCU as regulatory compliance counsel in July 2022. In this role, JaMonika assists credit unions with a variety of compliance issues.

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