Self-Directed IRA Rules, Requirements, and Prohibited Transactions

Self Directed IRA Rules & Prohibited Transactions" width="1200" height="800" />

Complete Responsibility and Control of Your Investments

Self-directed IRAs give you great power to invest in alternative assets. These may be assets you are already familiar with such as real estate, private placements, IRA LLC, and many more. But with great power comes great responsibility.

It is very important to know that as a self-directed investor you are responsible for making all the decisions and investment choices for your IRA . Your self directed IRA custodian is not responsible for vetting your investment choices . Also, you are responsible for making sure you do not break the rules that keep your self-directed IRA in a tax

3 Self-Directed IRA Rules You Should Never Break

Breaking the rules can result in severe tax consequences. Whenever you are unsure of a transaction or situation, always consult with a tax or financial advisor before you act to get clarification. Here are the main rules that you should remember when engaging in a transaction with your self-directed account.

1. Disqualified Persons

The IRA investor or his or her beneficiaries cannot engage in a transaction with a disqualified person. These persons are listed below. When you break this rule, your IRA is no longer an IRA and it loses its tax benefits.

2. Personal Benefit

The IRA investor cannot use the self-directed IRA for personal benefit. For example, rental income from an investment property owned by the IRA must be deposited in the IRA account and not in a personal account. All income from IRA assets must be put back in the IRA.

3. Disallowed Investments

The IRA investor cannot invest in disallowed assets per IRS rules for retirement accounts. Disallowed IRA assets or investments are explained further below.

Guide

Self-Directed IRAs: Getting Started

What is a Disqualified Person in IRA Investing?

Disqualified Persons are people or entities that cannot do any direct or indirect deals, investments or transactions with the IRA.

The IRA cannot do business with:

• You, the IRA owner
• Beneficiaries of your IRA
• Your family members:
  • Spouse
  • Parents
  • Grandparents and great-grandparents
  • Children and their spouses
  • Grandchildren, great-grandchildren, and their spouses

  

  Article

  5 Examples of Prohibited Transactions in Your Self-Directed IRA

  Allowed and Disallowed Investments in a Self-Directed IRA

  Self-directed IRAs give you the freedom, flexibility, and choice of how to invest your hard-saved dollars. You can expand and diversify your investment opportunities beyond the stock market into a variety of alternative investments Self-Directed IRA Prohibited Transactions & Requirements

  Your retirement plan is intended to benefit you when you retire, and not a moment before you reach that magic age. Transactions that the IRS interprets as providing you immediate, personal financial gain on investments owned by your retirement account are not allowed.

  Making a prohibited transaction or dealing with a Disqualified Person strips away the tax-deferred feature of your account. This makes the transaction automatically and immediately taxable. (See IRC Section 4975 for a complete list of prohibited transactions.)

  Examples of Prohibited Transactions

  You cannot use your self-directed IRA to:

  • Sell, exchange, or lease property you already own to your IRA as an investment
  • Transfer IRA income, assets, or investment to a Disqualified Person
  • Lend IRA money or extend IRA credit to Disqualified Person
  • Supply goods, services, or facilities to Disqualified Person
  • Allow fiduciaries to obtain or use the IRA’s income or investment(s) for their own interest