If you’re found violating any self-directed IRA rules, your IRA could lose its tax-deferred status, be disqualified, and you could face serious tax penalties. To steer clear of any trouble, here are the biggest rules to remember.
Self-dealing can easily be looked over if you don't know enough about the rules to investing with your self-directed IRA or 401K. To understand self-dealing better, you must first understand what a self-directed IRA is, and how a basic retirement account works. Retirement accounts are designed to benefit the owner of the account upon retirement not before . Knowing the purpose of retirement accounts you can better understand what self-dealing is.
Self-dealing IRA transactions bring personal gain to the account owner. Remember, the account owner cannot receive any personal gain with retirement accounts until retirement. If so, you could be subject to taxes and other penalties. Check out our self-dealing article for more info.
The IRS has made it clear that you may not receive a direct or indirect benefit from your IRA before retirement. An indirect benefit is the same thing as self-dealing, and many times the words are used interchangeably. Making sure you know about both phrases is important because you never know what phrase will be used. An example of an indirect benefit from your IRA, could be living in the property that your IRA owns, or receiving a salary from the management of your IRA assets. For more examples of what could be considered an indirect benefit/self-dealing check out our article about indirect benefits.
Self-Directed IRA Investments Not Allowed
There are plenty of other self-directed IRA rules to be aware of when investing and dealing with your IRA. The IRS has outlined three investment types and rules that are prohibited inside an IRA. They are:
- Life Insurance policies
- Transactions with related parties (disqualified persons)
These three types of self-directed IRA investments are considered disqualified transactions, but what does that mean? What exactly qualifies as a collectible, and who is a disqualified person? Learn more on our Disqualified Transactions article from our blog.
When you invest in an IRA, you need to be aware of 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. For a more in-depth look at how the IRS describes disqualified persons check out our article on Disqualified Persons.
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