What are considered prohibited transactions for self-directed IRAs?
Self-directed IRAs can be a phenomenal vehicle for building wealth inside your retirement plan. There are only two investments that are not considered “permissible” under the Internal Revenue Code (”IRC”): life insurance and collectibles. It can be 100% legal to invest your retirement funds into many alternative assets. These include, but are not limited to, real estate, tax liens, gold, mortgages and even a small business or franchise.
The rules that apply to self-directed IRAs have been well defined in the IRC and labeled as “prohibited transactions.” Most prohibited transactions are the result of inappropriate interaction between your retirement plan and a “disqualified party.” A “disqualified party” is:
In regards to self-directed IRAs, a disqualified party is:
- The IRA owner or the spouse of the owner
- The IRA owner’s lineal descendants and ascendants
- An entity with combined ownership greater than 50% by a disqualified person(s)
- A 10% owner, officer, director or highly compensated employee of such entity
- A fiduciary of the IRA or person providing services to the IRA
A self-directed IRA, or any retirement plan, is intended to benefit the retirement account holder upon retirement - not any time before. Self-directed IRA rules prohibited any activity that is not for the exclusive benefit of the retirement plan.
Your self-directed IRA cannot, directly or indirectly, sell, exchange or lease any property to or with you or a disqualified party. Some examples of prohibited transactions include (but are not limited to):
- Using your retirement plan to buy a home for you to live in now
- Guaranteeing assets of your retirement as collateral for a loan
- Selling personal investment property to your IRA
- Loaning money to your child
- Paying yourself fees from cash flow generated from your IRA’s investments
- Buying collectibles such as rugs or gems with retirement funds
- The purchase of life insurance
There are countless ways in which you can maximize your retirement account’s potential without violating the self-directed IRA rules. Guidant Financial Group has helped thousands of investors to successfully navigate the self-directed IRA rules and ultimately satisfy their retirement objectives.
More Information: Self Directed IRA LLC & Small Business Financing
