Self-Directed Retirement Plan Rules & Guidelines

Self-directed retirement accounts provide a great deal of freedom, flexibility, and a wealth of investment choices. However, these accounts have rules that investors need to be aware of to maintain these benefits. The IRS mandated these rules to ensure that your retirement plan does not provide you any personal benefits until retirement. Be sure you understand these rules to keep your account in compliance. If you do not follow these rules, your plan could suffer penalties, taxation, or loss of its tax-sheltered status. You should always consult your attorney, tax, and investment professionals regarding your investment decisions.

Prohibited Transactions

Some types of self-directed transactions violate your IRA’s basic intent and subject your account to risks and penalties. Your retirement plan is not to benefit you before you reach retirement age. Actions providing immediate financial gain to the account holder or other disqualified persons/parties are not allowed. Examples include:

  • Borrowing money from your IRA
  • Selling, exchanging, or leasing personally owned property to your IRA
  • Using your IRA as security for a loan
  • Transferring plan income or assets to disqualified persons
  • Lending IRA money to disqualified persons
  • Extending credit on your IRA to disqualified persons
  • Furnishing goods, services, or facilities to disqualified persons
  • Allowing fiduciaries to obtain or use the plan’s income or assets for their own interest

Who Are Disqualified Persons?

  • The IRA holder and his/her spouse
  • The IRA holder’s lineal descendants, ascendants, and their spouses
  • Investment advisors and managers
  • Corporations, trusts, partnerships, or estates in which the IRA holder owns a 50 percent or greater interest
  • Anyone providing services to the IRA, such as the trustee or custodian

Prohibited Investment Types

Your self-directed IRA may NOT invest in life insurance products or collectibles. Examples of collectibles include works of art, rugs, antiques, and alcoholic beverages. Your IRA may invest in precious metals, but the metal must be approved, meeting certain fineness requirements.

2020 Important Dates

April 15, 2020 – Deadline to open and fund traditional and Roth IRAs, ESAs, and HSAs for your contribution to be deductible on your 2019 tax return filed by April 15, 2020.

April 15, 2020 – Due date to file and pay 2018 tax returns or request a 6-month extension (with estimated payment of tax due)

Note: SEP IRAs must be opened and funded by tax filing date, including extensions