You being able to invest in what you want is equally as important as you become familiar with the rules and laws involved. It can definitely be overwhelming, but it’s not at all impossible to go from novice to knowledgeable. The reason we stress this so much is that is due to the off chance that your IRA gets disqualified by the IRS because of a rule violation. The only way to avoid that is to vigilantly abide by the set IRS rules, and get cozy with these self-directed IRA rules.
Self-Directed IRA Rules
The IRS has outlined two things that are not allowed inside of an IRA and so you will want to stay clear of these types of investments or they will surely disqualify your IRA. What are the two disqualified transactions?
- Insurance Policies- You cannot take out a life insurance policy on yourself inside of an IRA. We will get more into why this is the case under the self-dealings section.
- Collectibles- This includes stamps, coins, artwork, guns, cars, and any other asset that could be deemed a collectible. If it seems like a collectible then the best bet is to stay clear of the investment. Note: The IRS does allow gold and silver as long as it meets certain criteria.
This is a very big issue when investing with a self-directed IRA. In regards to disqualified persons you cannot lend money to them through your IRA, invest in their businesses through your IRA or let them live in a real estate property that you purchased through your IRA. The following is directly from the IRS website and explains what constitutes someone as a disqualified person. So who is considered a disqualified person? The following image should help show you who is considered disqualified and who may be disqualified.
This is the general rule for disqualified persons. You will want to make sure for your specific situation that you are not doing any dealings with disqualified persons. Contact us today for help in determining if you are dealing with a disqualified person.
This is another topic that can be easily broken but easily forgotten. IRA owners cannot make investments that benefit themselves, even indirectly. For example, you cannot use your IRA to buy a house that you will be living in. Nor can you use your IRA to buy a house that any of your family members will be living in or be renting. This is another area that you will want to make sure your specific situation is in line with the self-directed IRA rules. If you need help trying to make sure you are not self-dealing then contact us and we can help.
These are just a few of the biggest rules to investing with your IRA. We want you to be fully aware and educated so that you can have the best experience investing with your IRA. It should also be noted that if you fail to abide by any of these rules you risk significant tax liability to your IRA and in turn, you would be removing all the benefits that come with IRAs.