disallowed IRA transactions

One of the things we talk about a lot on our blog is that there are so many options when it comes to investing with your self-directed IRA. A whole new world opens up with real estate, private companies and LLCs, precious metals, and more. This freedom, flexibility, and choice are huge benefits.

However, it is important to know and understand that there are limitations. Self-directed IRAs are governed by a set of rules that self-directed investors must be aware of and follow. This means that there are some transactions not allowed with your self-directed IRA.

Some types of self-directed transactions violate the basic intent of your IRA, and may subject your account to risks and penalties. Plus, your retirement plan is intended to benefit you when you retire and not before. Transactions that can be interpreted as providing immediate financial gain to the account holder or other disqualified persons holders are not allowed.

Here are some examples of things that you may not do as a self-directed IRA holder:

  • Borrow money from the IRA
  • Sell, exchange, or lease property to the IRA
  • Receive compensation for managing property held by the IRA
  • Use the IRA as security for a loan
  • Transfer plan income or assets to disqualified persons
  • Lend IRA money to disqualified persons
  • Extend credit on the IRA to disqualified persons
  • Furnish goods or services to disqualified persons
  • Allow disqualified persons to use plan assets

That’s all fairly straightforward, except what do we mean by a “disqualified person”? For IRAs, a disqualified person is the IRA holder and his or her spouse; the IRA holder’s lineal descendants (children, grandchildren), ascendants (parents, grandparents) and their spouses; investment advisers and managers; and any corporation, partnership, trust, or estate in which the IRA holder has a 50 percent or greater interest.

There are also a few prohibited holdings it’s important to specifically mention. These include:  life insurance; collectibles, including works of art, rugs, antiques, metals other than gold and palladium bullion, gems, stamps, and coins (except certain U.S.-minted coins); alcoholic beverages; and other tangible personal property that may be defined by the Secretary of the Treasury.

Compared to what you CAN do with your self-directed IRA, this list is actually not very long. There are many, many options out there, but to be sure that you are following all rules and regulations, working with a self-directed IRA custodian, such as IRA Innovations, is your best bet to finding the right investments you can make.

IRA Innovations provides self-directed retirement account administration and education. As the experts when it comes to “alternative” investments including private equity, they can provide the necessary tools and information to get started with a real estate IRA.