Frequently Asked Questions about Self-Directed IRAs

What is a Self-Directed IRA?

Self-directed IRAA self-directed IRA is an individual retirement arrangement, like any other. What sets self-directed IRAs apart, though, is that you, the investor, take direct control over your investments. It’s a way of eliminating the middle man. Most investors pay a brokerage house, mutual fund company or other investment company to hold their assets on their behalf. Self-direction, on the other hand, puts you in control. With self-directed IRAs, you can take personal charge of the assets in your IRA while expanding the number and types of investments you may make in your IRA.

Why use a Self-Directed IRA?

When you elect to use a self-directed IRA, you are no longer limited to the standard IRA menu of stocks, bonds, mutual funds, CDs, money markets, and annuities. Using a self-directed IRA allows you to move beyond these traditional investments to seek better returns or more diversification elsewhere.

What can I invest in?

In a nutshell, almost anything. The IRS has very few restrictions on what you can own within a self-directed IRA. Anything not specifically prohibited by the IRS is legal. Under current IRS rules, here are the prohibited investments:

  • Life insurance
  • Collectibles
  • Art
  • Alcoholic beverages
  • Jewelry
  • Gemstones
  • Certain forms of precious metals.

Obviously, the list is very short. That leaves open a huge menu of investment opportunities. Some of the more popular investments within self-directed IRAs include:

  • Rental property
  • Raw land
  • Gold and precious metals (subject to certain requirements for standardization and purity)
  • Closely-held corporations
  • Small businesses
  • Partnerships
  • Venture capital
  • Mortgages and promissory notes
  • Options and derivatives
  • Forex
  • Farms and Ranches
  • Oil & gas investments
  • Mineral rights
  • Tax liens and tax deeds
  • Mortgage pools and other structured debt

Can I own my own house in my self-directed IRA?

No. You cannot use any property you own in your self-directed IRA for your own personal convenience. This means you cannot live in your property as long as it’s held in your IRA. Nor can your spouse, nor any other prohibited individual, as defined by the IRS.

Who are prohibited individuals?

The IRS has strict regulations prohibiting self-dealing within self-directed IRAs. This means you cannot use the IRA, together with its generous tax subsidies, as a backdoor method to enrich yourself, your family members, or your attorneys and financial advisors. Specifically, they IRS prohibits the following people, and from doing business directly with your IRA:

  • Your parents, grandparents and great grandparents and their spouses.
  • Your children and grandchildren and their spouses.
  • Your spouse
  • Any financial advisors, attorneys, accountants or other professionals who advise you on your IRA and their spouses.
  • Any business entities, such as corporations, LLCs or partnerships controlled by a prohibited individual.

As of early 2012, there is no prohibition against IRS doing business with your brothers, sisters, or their spouses or entities they control.

Are Self-Directed IRAs Tax Deferred?

Yes, for the most part. Self-directed IRAs generally receive the same tax benefits as traditional IRAs and Roth IRAs, as the case may be. There is, however, one exception: If your IRA borrows money, any gains attributable to money borrowed from outside the IRA may be subject to unrelated debt income tax, or UDIT. For additional information about UDIT, and how it may apply to you, consult your tax advisor. American IRA does not provide individualized tax advice.

What About Other Retirement Accounts?

The benefits and flexibility of self-direction aren’t limited to traditional IRAs. You can also self-direct investments within your Roth IRA, SIMPLE IRA, SEP IRA, Solo 401(k), and even your health savings account. In fact, because of the much higher contribution limits for Solo 401(k)s, SIMPLE IRAs and SEP IRAs, you may want to consider us

How Do I Open a Self-Directed IRA or other account?

  • Opening a self-directed IRA account is very easy:
  • Call American IRA at 866-7500-IRA (472), and open an account.
  • Fund the account, either with new contributions or by rolling money over from an existing eligible retirement account.
  • Identify an investment opportunity.
  • Provide American IRA with specific direction to purchase the asset on your behalf.
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