Posts Tagged ‘disqualified persons’

Self-Directed IRA Rules and IRS Regulations

Monday, September 11th, 2017

If you’re new to the retirement world, you may be feeling overwhelmed by the amount of jargon and rules. If you familiarize yourself with the essential rules, you can avoid penalties, and reach your retirement goals.

Disqualified persons

One of the easier ways someone can violate self-directed IRA rules is by not understanding who exactly is a disqualified person. These people include the IRA owner’s parents, spouse, their children, and grandchildren. These people are excluded from benefitting from the IRA owner’s investments, for example, if the IRA owner’s adult child needs a home to rent, and the IRA owner has property in their IRA, their child cannot stay in that investment property.

Investment Types

The first thing you learn about self-directed IRA rules is that you, as the owner, are allowed to invest in pretty much anything you’d like. For the most part, that’s true, but there are limitations and exclusions to keep in mind. The IRS has a handful of basic assets that aren’t allowed:

  • Life insurance
  • Collectible items (like paintings, antiques)
  • Gems and coins

Borrowing and lending money

Borrowing and lending in a self-directed IRA gives the owner the ability to loan their IRA money to non-disqualified persons. How it works is that if pre-agreed to, an IRA can receive a certain amount of principal and interest, just like a bank would. What’s appealing is that the IRA holder chooses who to lend to, the interest rate, the principal amount, length of the loan, payment amount, and frequency, and whether the loan is secured by collateral or not.

Disqualified Persons in Regards to Self Directed IRAs and 401ks

Thursday, January 16th, 2014

You will want to set up a self directed IRA account if you plan to invest in gold, real estate or other businesses with an IRA. Setting up an account is fast and easy, but when it comes to investing with your self directed IRA or 401k it can be a bit trickier. You have to make sure you are doing everything correctly to avoid any disqualification of your IRA or 401k.

One basic rule to self directed IRA investing that you need to be aware of pertains to disqualified persons. 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.

A disqualified person is any of the following:

(1)  a fiduciary of the plan;

(2)  a person providing services to the plan;

(3)  an employer, any of whose employees are covered by the plan;

(4)  an employee organization, any of whose members are covered by
       the plan;

(5)  any direct or indirect owner of 50% or more of any of the following:

  • the combined voting power of all classes of stock entitled to vote, or the total value of shares of all classes of stock of a corporation that is an employer or employee organization described in (3) or (4);
  • the capital interest or profits interest of a partnership that is an employer or employee organization described in (3) or (4); or
  • the beneficial interest of a trust or unincorporated enterprise that is an employer or an employee organization described in (3) or (4);

(6)  a member of the family of any individual described in (1), (2), (3), or
      (4) (i.e., the individual’s spouse, ancestor, lineal descendant, or any
      spouse of a lineal descendant);

(7)  a corporation, partnership, trust, or estate of which (or in which) any
       direct or indirect owner described in (1) through (5) holds 50% or
       more of any of the following:

  • the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of a corporation;
  • the capital interest or profits interest of a partnership; or
  • the beneficial interest of a trust or estate;

(8)  an officer, director (or an individual having powers or responsibilities
      similar to those of officers or directors), a 10% or more shareholder,
      or highly compensated employee (earning 10% or more of the yearly
      wages of an employer) of a person described in (3), (4), (5), or (7);

(9)  a 10% or more (in capital or profits) partner or joint venture of a
       person described in (3), (4), (5), or (7); or

(10)  any disqualified person, as described in (1) through (9) above, who
         is a disqualified person with respect to any plan to which a
         multiemployer plan trust is permitted to make payments under
         section 4223 of ERISA.

For additional information, see Publication 560 on the IRS website.

The below infographic shows disqualified persons. The infographic is a general rule and different situations could deem others as disqualified persons or not a disqualified person. Talk to a professional to know if your specific situation involves anyone that would be considered a disqualified person.

Click on the image for a bigger view.
Disqualified Persons

Contact us or comment below with any questions or to learn more about self directed IRAs.

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