What are Self Directed IRAs?
An Individual Retirement Account is a personal savings plan that allows one to save for retirement in a tax-advantaged way. Therefore, Self Directed IRAs provide the flexibility to include alternative investments in your retirement planning. Most IRA custodians only allow stock, bonds and mutual funds to be held on their platform. A truly self-directed IRA custodian, such as Premier Trust, allows clients to hold non-traditional investments outside of the traditional stocks, bonds, and mutual funds.
What Types of Investments Are Allowed and Not Allowed?
Many different types of investments can be held in a Self Directed IRA. Some include real estate, promissory notes, private placements, etc. When discussing Self-Directed IRAs, it’s often easier to determine what cannot be held in an IRA than what can be held in an IRA.
Assets That Cannot Be Held in Self Directed IRAs
- Collectibles (including works of art, rugs, antiques)
- Metals other than gold, silver, and palladium bullion
- Gems
- Stamps
- Coins (except certain U.S.-minted coins)
- Secretary of the Treasury prohibits alcoholic beverages and other tangible personal property
- Insurance
- S-Corp Stock
Associated Self Directed IRAs Risks
- Prohibited Transactions
These transactions are between a retirement plan and a disqualified person. However, if you are a disqualified person who takes part in a prohibited transaction, you must pay a tax. (IRS.gov)
For example, an IRA holder may not:
- Receive unreasonable compensation for managing property held by the IRA
- Use the IRA as security for a loan
- Transfer plan income or assets to disqualified persons
- Lend IRA money to disqualified persons
- Borrow money from the individual retirement account
- Sell, exchange or lease the property to their IRA
- Extend credit on their IRA to disqualified persons
- Furnish goods, services, or facilities to disqualified persons
- Allow fiduciaries to obtain or use the plan’s income or assets for their own interest.
A disqualified person is:
- The IRA holder and his or her spouse
- The IRA holder’s lineal descendants, ascendants, and their spouses
- Anyone providing services to the IRA, such as the trustee or custodian (See IRS Section 4975 for a complete list of prohibited party’s credentials)
- Investment advisers and managers
- Any corporation, partnership, trust, or estate in which the IRA holder has 50 percent or greater interest.
The Self-Dealing Rule
This is a legal principle that:
- prevents IRA owners from making investments (or loans) that benefit themselves or certain family members
- bars mingling of your IRA and non-retirement funds
However, the self-dealing rule taxes your IRA if neglected.
Do Your Due Diligence
Before diving into a self-directed IRA account, you need to perform your due diligence. Do extensive research on all of your investment options, ask your tax or legal advisor any necessary or looming questions. Finally, take the opportunity to learn more about your investment opportunities and how it can benefit you and your future. The more you know about your investments, the more you are in control!
Contact Premier Trust
In order to gain more information on Self Directed IRAs, call to speak with one of our IRA experts at (702) 507 – 0750 or e-mail us at ira@premiertrust.com.
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