Self-Directed IRA Prohibited Transactions: What to Know

Prohibited Transactions inside of an IRA

When self-directed IRA investing, it’s essential to be aware of the self-directed IRA prohibited transactions. These are transactions that could disqualify the tax status of your retirement account, so it’s crucial to avoid them. This blog post will go over popular self-directed IRA prohibited transactions and what you need to know about them.

A few self-directed IRA prohibited transactions are:

Transactions With Disqualified Persons

This can include selling, leasing, or exchanging property between the IRA and a disqualified person. It also includes engaging in a transaction with a disqualified person.

Using IRA Property for Personal Benefit

There are two main things you’ll want to make sure of to maintain the retirement status of your account. First, make sure you have not taken any distributions from the account while in retirement. Second, and most importantly, do not receive any personal benefit from your property while the IRA owns. This can include using IRA-owned real estate as a personal residence or a vacation home.

Borrowing money from the IRA

Retirement accounts are meant to benefit you while in retirement and no earlier. If a disqualified person or yourself borrows money from your self-directed IRA, you put your IRA at risk. This is called self-dealing and disqualifies the tax status as a retirement plan if you do so. 

Disqualified Transactions with Real Estate

You need to be extra careful and aware of disqualified transactions when investing in real estate. Many investors have ideas of what they want to do with the real estate they invest in. You must be sure that what you want to do with real estate isn’t considered a prohibited transaction.

Living in the property your IRA has purchased would be considered a disqualified transaction called personal benefit. While you live in the property, it is used for personal benefit and isn’t being held for investment purposes. This can easily cancel the retirement status of your account.

Another example is if the property in your IRA needs upkeep or renovations. You need to hire an outside, third-party contractor to complete all of the renovations. If disqualified persons or yourself are involved in the renovations or upkeep, you put your retirement account at risk. Doing this could be considered a self-directed IRA prohibited transaction and ruin the tax status of your retirement account.

Conclusion

Having a self-directed IRA can seem overwhelming, especially with all the rules and things to be aware of. We hope this information has helped clear things up. Click here if you would like information about prohibited alternative investments inside an IRA.

We at Accuplan are experts in self-directed retirement account investing. We can help you if you have any questions about prohibited transaction rules inside retirement accounts.

If you need any more information, don’t hesitate to contact us.

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