Self-Directed IRA Rules – Indirect Benefit

Indirect Benefit

Investing in a Self-Directed IRA is a great alternative to investing in traditional investments such as stocks, bonds, and mutual funds. Through a Self-Directed IRA, you can invest in more non-traditional investments such as real estate, private placements, gold and silver, loans, and other hard assets.

Many individuals shy away from investing in Self-Directed IRAs because they don’t understand basic self-directed ira rules, don’t know what they can invest in, think the fees are too high or have been discouraged by their financial advisor.

Most clients understand with a Self-Directed IRA that they cannot invest with a related party. To learn more about related parties read more at, Disqualified Persons in Regards to Self-Directed IRAs and 401ks.  One self-directed IRA rule which is less understood and can be difficult to consult on is receiving or giving an indirect benefit from your IRA.

The IRS has made it clear that they do not want you to receive or give a direct or indirect benefit from or from your IRA.  A direct benefit that you could receive from your Self-Directed IRA could be living in the property that your IRA owns or receiving a salary from the management of your IRA assets.  Examples of providing a direct benefit to your IRA could be providing “sweat equity” to fix up a property when normally that work would be hired out.  Indirect benefits could be a number of different benefits.  Below, I will list some of the indirect benefits you could receive from your IRA that would be prohibited:

  1. You may not be living in a property that your IRA owns but if you use that property for personal use, even for a short period of time, it could be disqualified
  2. Leasing out space to another customer and then having that customer sub-lease part of the space back to you
  3. Buying raw land and using that land for your own personal use (i.e. hunting on land your IRA owns)
  4. If you want to invest in an investment that requires a certain initial amount (i.e. $100,000) and you don’t have enough personal funds to invest in that investment but with the combination of personal and IRA funds you do have enough money, it could be disqualified
  5. You cannot personally pay for expenses that your IRA should be paying for, this would be an indirect benefit you would be providing your IRA
  6. If you are buying real estate and are personally going to get a loan for a portion of the property, you cannot have the bank collateralize the IRA’s portion that it owns.  The bank can only collateralize your portion of the property
  7. You cannot loan funds to an unrelated party and then have that person turn around and loan the funds back to you

If you have any more questions about Self-Directed IRA Rules or if you think you could be entering into a prohibited transaction feel free to call, email or comment below. We are here to help you invest in the retirement you have always wanted. Set up an account today.

Author: , Self-Directed IRA Professional

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