Self-Directed Investing 101
The Self-Directed IRA industry is growing at a staggering pace and is expected to see over $2 trillion enter the market over the next few years. With over 45 million retirement account holders and less than 4% of those being held in nontraditional assets, the time to consider Self-Directed investing is now. The Investment Company Institute- the national association of U.S. investment companies, estimates that nearly $4.7 trillion in IRAs were held in the U.S. last year. Of this, an estimated $94 billion or a mere 2 percent are Self-Directed IRAs.
So, what is Self-Directed IRA Investing?
What Can I Invest in?
|Types of Self-Directed IRA Investments Allowable by IRS:|
|Residential real estate||Tax Lien Certificates||Precious Metals|
|Commercial real estate||Equipment leasing||Factoring|
|Undeveloped or raw land||Livestock||Accounts Receivable|
|Real estate notes||Foreign currency||Oil and Gas|
|Promissory notes||Stocks ,bonds, mutual funds||Structured Settlements|
|Limited partnerships||Private placements|
|LLC and C-Corp||Structured Settlements||LLCs, LPs and C-Corporations|
What are the Rules?
- Collecting management fees for your properties is also prohibited as it is a direct benefit for you, the account owner.
- Collecting commissions on properties purchased through your IRA.
- You may not buy, sell, or lease your real estate from disqualified persons.
- All profits generated from an IRA owned asset must be paid back into the IRA and all expenses incurred by the asset must be paid by the IRA (they may not be paid with personal funds and reimbursed by the IRA).
- Any debt used to acquire an asset in an IRA must be non-recourse. In other words, the IRA owner is prohibited from guaranteeing the note personally.
- Your Spouse
- Your Children
- Your Children's Spouses
- Your Parents
- Certain Business Partners
- The property must remain in the IRA until distributed or sold to a third party.
- Property owned within an IRA will not be able to take advantage of write-offs, such as depreciation or other expenses relating to the property.
- All rental profits must be returned to the IRA.
- When purchased, the property becomes an asset of the IRA.
- If you are an owner, you may not lease to a disqualified person, or in any way have a disqualified person occupy the property while it's owned by your IRA.
- While an IRA owner cannot manage the property, they can hire a property manager or real estate broker to collect rent and maintain the property.
- Neither the IRA owner nor his/her family members (siblings excluded) may have access to or utilize the property while it's in the IRA.
- Borrowing money from an IRA. IRA's are prohibited from making loans to IRA owners as well as any other disqualified persons.
- IRA owners are prohibited from using their IRA as collateral for any loan, as the amount they pledge as security will be deemed a distribution by the IRS.
- Selling assets you already own to your IRA or to a disqualified person's IRA.
- Purchasing a property for personal use, either by the IRA owner and/or a family member.
- Purchasing a property owned by a family member who is a disqualified person.
- Lending money to a disqualified person.