By Andy Ives, CFP®, AIF®
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People on TikTok create investment advice videos? And I’m supposed to trust whatever this talking head is telling me? No chance. Of course, the person on TikTok could hold a number of higher education degrees and financial certifications, but until I know for sure who they are, what they are talking about, and what their objective is, I will keep my distance.
The internet cannot always be trusted. Artificial intelligence creates bogus news articles, deluded people spew falsehoods, and bad actors intentionally create information anarchy. Indeed, having a healthy dose of skepticism can keep a person out of trouble. Believe only half of what you see, and none of what you hear. Verify. Seek a trusted and knowledgeable third party to confirm or deny whatever information you just inhaled. Multiple resources must be consulted, especially with important decisions concerning retirement accounts (or anything else, for that matter).
Unfortunately, a heck of a lot of people follow a different mantra… “If it’s on the internet, it must be true.” Such thought process is utterly foreign to me…but how else to explain what we are seeing in actual court cases?
In the McNulty case, a Rhode Island nurse lost a chunk of her $400,000 nest egg when the Tax Court held that her self-directed IRA investment in gold coins…that she kept in her possession in her own house…was a taxable distribution. While gold coins and gold bullion can be IRA investments, they must be held by a qualified trustee or custodian. Why did Mrs. McNulty think she could keep the gold coins at her home in a safe? The internet said so. In the text of the decision, Mrs. McNulty states she found the company offering the gold coins while doing internet research. (I’m sure she saw glorious pictures of people with handfuls of gold coins clinking and tumbling through their fingertips.)
In the Lucas case from earlier this year, Robert Lucas was required to pay taxes and a 10% early distribution penalty on a $19,365 distribution from his 401(k). Based on his own internet research and failed understanding of the 10% disability penalty exception, he claimed an exemption from taxes and penalty because of his diabetes. Yet Mr. Lucas was working a full-time job in the year of the distribution. The court ruled there are degrees of disability, and his diabetes diagnosis did not rise to the level necessary to qualify for the 10% exception. By relying on a “financial website” for information, he improperly concluded his diabetes qualified him as disabled and that neither taxes nor the 10% penalty applied.
Just what bogus financial services website did Mr. Lucas stumble upon, and why did he trust it? What made Mrs. McNulty believe in the bad actor who created the internet site and falsely claimed she could keep her gold coins at home? Neither McNulty nor Lucas was being malicious. They were just gullible.
I think humans, for the most part, are programmed to trust one another. But the internet is a cesspool. For every cute kitten video, there are probably a hundred snakes. Be smart. Be diligent. Be aware of your surroundings. Knowledgeable, trustworthy people are ready to guide you through the morass. Seek them out and engage in thoughtful conversation before making any major decisions – regarding your retirement accounts or otherwise.