There are a lot of investment options when you consider a self-directed IRA. You can invest in real estate, precious metals, futures and forex, LLC’s, private stocks, private lending, among many others. Just like everything else, there are rules that the IRA holder must be familiar with in order to utilize the IRA to its full potential. Once familiar with these guidelines, it is very simple to follow and maintain them. The key rules that everyone should know regarding a self-directed IRA are prohibited investments, disqualified parties, prohibited transactions, and that the IRA is meant to benefit you when you retire.
- Prohibited Investments: There are two investments that you are not allowed to acquire in an IRA and those are life insurance and collectibles. Life insurance is prohibited because it benefits your heirs, whereas the IRA benefits YOU when you retire. Collectibles are not allowed, as it is difficult to determine a value for them. Some examples of collectibles are:
• Works of art
• Metals other than certain gold, silver, palladium
• Alcoholic beverages
- Disqualified Parties: These include your lineal ascendants and descendants (mother, father, daughter, son, and grandchildren), fiduciaries of the plan (anyone that provides services to the IRA, CPAs, attorneys, etc.), spouses of the lineal ascendants and descendants, and the IRA holder’s spouse. However, it is acceptable to conduct activity within your self-directed IRA with aunts, uncles, siblings, cousins, and friends.
- Prohibited Transactions: Some common examples of these types of transactions are:
• No self-dealing: which means you cannot loan yourself money from your IRA and your IRA cannot buy or sell property from you personally and vice versa.
• Your IRA cannot loan money or purchase/sell an asset from or to a disqualified party member.
• Clients who own real estate make the most common prohibited transaction, which is paying for expenses personally instead of from their IRA. Anything associated with the property (taxes, bills, and HOA dues) should be paid out of the IRA.
Finally, your IRA is meant to benefit YOU when you retire. Once you understand the basic guidelines set forth by the IRS it is easy to conduct your investments accordingly, so don’t get discouraged! Watching your money grow tax-free in your IRA leaves you feeling very rewarded and gives you peace of mind knowing that you’re prepared for retirement.
To learn more about self-directed IRAs and taking control over your retirement please contact the professionals at Midland IRA at 239-333-1031.