Posts Tagged ‘self directed ira rules’

Why These Self-Directed IRA Rules Are Important

Monday, August 6th, 2018

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

Disqualified Transactions

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?

  1. 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.
  2.  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.

Disqualified Persons

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.

Self-Dealing

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.

Self-Directed IRA Rules and IRS Regulations

Monday, July 23rd, 2018

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.

Private Lending with a Self-Directed IRA

Monday, November 13th, 2017

We’ve all heard of or taken out a loan in our lives, and it’s usually through a bank or another financial institution. What most IRA owners don’t know is that they are allowed to lend out the funds in their IRAs in the same way. The idea is that your funds can be loaned out and used to invest in real estate, small businesses, land, pretty much anything. Your IRA is acting as the financial institution.

Disqualified persons

Now, a regular IRA cannot loan out funds, but a self-directed IRA can. Since you’re loaning out through your self-directed IRA, the IRS rules will still apply when it comes to WHO you can loan the money to. Self-directed IRA funds can be loaned out to anyone who isn’t a disqualified person. That includes you, your spouse, your children, or parents. The same rules still exist for private lending that exists for self-directed IRAs.

Setting the terms

One of the main draws to private lending is that you’re allowed to predetermine the terms of the loan. First, you obviously can set the amount that you’re loaning to the person seeking the loan. You can also set the interest rate, the payment amount, and the length of the loan. You can choose if it’s a secured or non-secured loan. Securing the loan can be done through real estate, cars, pretty much anything that you choose. Note that the value of the item does not have to be equal to the loan amount.

No IRA is too small

Even if you have less than $20,000 in your IRA, or even just $5,000, the beauty of private lending is that you’re still one hundred percent allowed to loan out your funds. If you have a lower amount of money in your IRA, you’re also able to combine funds from your IRA and funds from another IRA to loan out.