Self Directed IRS Rules

Self Directed 401k | Real Estate IRA

Self Directed IRS Rules & Prohibited Transactions

Under the correctly structured self directed IRA, it can be 100% legal to invest your retirement funds into many alternative assets such as real estate, tax liens, gold, mortgages and even a small business or franchise, and more.

There are only two investments that are not considered permissible under the Internal Revenue Code (IRC). They are life insurance and collectibles.

Most prohibited transactions are the result of inappropriate interaction between your retirement plan and a disqualified party. The definition of a disqualified party in regards to self directed IRAs 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 IRAs 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. AES has helped thousands of investors to successfully navigate the self directed IRA rules and ultimately satisfy their retirement objectives.