Madoff investors find accounts offer no protection

Some Madoff investors are similarly skeptical.

"It's not their responsibility to give me investment advice, but they have a responsibility to protect me from a thief," said Peter Moskowitz, a retired dentist from Corona, California, whose IRA — which he believed held $1.15 million — was entrusted to Madoff and administered by Fiserv.

Unlike traditional IRAs invested in stocks, bonds or mutual funds, self-directed IRAs allow investors to put their money into alternative investments. The only hitch is that the assets can't be used by the investor or their family at the time of the investment, since the goal of the IRA is to provide for future retirement.

Self-directed IRAs made up about 3 percent of the $4 trillion IRA market as of the third quarter of last year, said Tom Anderson, who runs the Pensco Trust, another large administrator of self-directed IRAs, based in San Francisco.

Investors alone decide where their money will go but must do it through a company like his that technically then "owns" the investments for tax purposes, he said. The custodial firm then handles the bookkeeping. His firm charges an annual fee of $375 to $2,500 depending on the size of the account.