Is the Self-directed IRA something new?

Not at all. Self-directed IRAs have been around for more than 30 years. However, out of the two TRILLION dollars held in retirement accounts, only about two percent are invested outside of stocks and bonds.

Why haven’t I heard of this before?

The traditional investment community has no incentive to inform you about other investment options. Brokers and banks have been making money off your investments for years and they had no reason to educate you on this option.
Self-directed IRAs have been available to savvy investors since 1975. Even so, many stick with ordinary investments, such as stocks, bonds, mutual funds, and exchange-traded funds because of the misconception these are the sole investment options for a comfortable retirement.

They also may also be unaware of the wealth-building capabilities because many brokerage companies have kept quiet about them. They only earn commissions when they buy and sell stocks, bonds, and mutual funds. Others are not interested in holding non-traditional assets they don’t entirely comprehend.

Which investments are prohibited?

You cannot invest in stamps, coins, artwork, rugs, metals, gems, beverages, antiques, stock in an S-Corporation, life insurance contracts, or other tangible personal property.

Which transactions are prohibited?

The IRS defines a prohibited transaction this way: “Generally a prohibited transaction is any improper use of your IRA account or annuity by you, your beneficiary or any disqualified person. Disqualified persons include your fiduciary and members or family (spouse, ancestor, linear descendant, and any spouse of linear descendant).” IRS Publication 590.

The Internal Revenue Code lays out the rules on prohibited transactions. Prohibited transactions generally involve one of the following: (1) doing business with a disqualified person; (2) benefiting someone other than the IRA; (3) loaning money to a disqualified person; or (4) investing in a prohibited investment.

The IRS prohibits “self dealing,” which are investments in which you or your family members of lineal descent have prior ownership.

Other prohibited transactions include real estate IRA investments, which can bring into question the tax-deferred status of your account, potentially resulting in the disqualification of your IRA and severe tax consequences.

Other transactions to avoid include borrowing money from your IRA, selling property to it, receiving unreasonable compensation for managing it, using it as security for a loan, and buying property for personal use.

You need to make certain it is your IRA that benefits from a transaction rather than you personally.

Can I buy a rental property - and who gets the rental income?

The rental income goes back into the IRA LLC and you retain the tax deferred or tax free status (in a Roth IRA) of the investment.

What is “checkbook control?”

You set up a bank account with the limited liability company as the legal entity. You are the manager of the LLC and you get a checkbook to make investment decisions. You control your future and what you want to invest in.

Are there any penalties or taxes when I transfer my IRAs to the self-directed IRA LLC?

Absolutely not. You are taking your IRA money and investing it in a limited liability company (LLC). You are keeping your money qualified as an IRA.

Can I invest outside of my state - or outside my country?

Yes, you can invest outside of the United States and in many instances this will produce your highest returns.