3 Things to be aware of with investing using your Self Directed IRA
Investing with your IRA is a great strategy to building wealth in real estate or what ever you are passionate about. There are three things to be aware of when preparing to use your Self Directed IRA for investments.
#1. You cannot perform the investment yourself. A qualified Custodian, such as Equity Trust or EnTrust for example need to be your custodian for all transactions including, but not limited to, the buy and sell side of your investments.
#2. You cannot perform investments to disqualified people. That would include, your grandparents, parents, spouse, children, and children's spouse. Think of your linear family tree. Qualified people include, siblings, aunts, uncles, and cousins to name a few.
#3. The investment cannot be for personal use. You cannot buy a piece of real estate and use it as your home, or the home of any of the disqualified people on your list.
Those are just a few quick tips to remember when using your IRA for investments
Comments (9)
that can get very sticky. Are you more than a 20% owner in the LLC? If so, it could be deemed a prohibited transaction
Kevin Kaczmarek, over 14 years ago
What about using your own IRA money to fund a purchase that is acquired via your real estate investing company (an LLC)?
Terry McIntosh, over 14 years ago
Violate these rules at your own risk!
Don Konipol, over 14 years ago
You can also keep an arms length away by becoming part of an investment group or private investing company. Qualified professionals can help you invest passively in Real Estate without getting you hands dirty and keeping you clear of taxable events. Really good points Charles.
Mike Meyer, over 14 years ago
Excellent point Charles. Things get really sticky when it comes to tax ramifications when you have to start using non-IRA funds in an IRA investment.
Kevin Kaczmarek, over 14 years ago
I would add that you want to be careful using leverage inside a self-directed IRA. People should also be aware that reserves are just as necessary inside an IRA if not more so than outside. An investor doesn't want to be put in the situation where they must put unqualified money into the IRA to make needed payments.
Account Closed, over 14 years ago
You can lend to siblings when its an arms length transaction. If the IRS can prove that your investment was done with "influence" from a sibling, they can deem the transaction null and void.
Kevin Kaczmarek, over 14 years ago
Good post. I have not looked at it, but would have also presumed siblings would be disqualified.
Ted Akers, over 14 years ago
You can lend to siblings? I thought that was a disqualified person.
Justin S., over 14 years ago