Self Directed IRA Owners – Don’t Make These IRA Mistakes

Every so often, it’s worthwhile to go over the most common mistakes Self Directed IRA owners make.

Surprisingly, even though the vast majority of our own Self Directed IRA clients are successful and experienced investors, we find that even these folks are prone to making some of these mistakes, though occasionally we can alert them before they commit, or their financial or tax advisors can show them how to avoid making them.

  1. Don’t get too religious about the Roth IRA. Yes, it has some great benefits for a lot of people. But it is not always the most tax efficient vehicle in the long run – especially when you can contribute tax deductible dollars, or when you’re going to retire in a very high tax bracket.
  1. Don’t wait until the last minute to contribute. If you think your investments are going to go up over time (that’s why you’re making them, right!), don’t wait until April to make your contributions for the previous year. The sooner you contribute your earnings or money from taxable accounts, the more interest and growth will be sheltered from taxes, and the more it’s likely to compound for you.
  1. Selling Assets Prematurely to Contribute to a Self Directed IRA. While we think you should contribute to your IRAs and other self-directed retirement accounts as early in the year as you can, there are times you should be a little patient. For example, if you need to sell appreciated assets in a taxable account to raise money to contribute, and you bought the assets 11 months ago, then it’s probably wise to wait another month before selling. That way, you qualify for long-term capital gains treatment rather than short-term capital gains.

Conversely, if you have assets that have fallen in value and you’ve held them less than a year, then it may be wise to sell and lock in some short-term capital losses.

4.) Converting to a Roth and paying taxes from within the account. Always use money from outside the account to pay income taxes on IRA conversions, if possible. This maximizes the amount of capital that is free to compound tax-free. If you take money out of the IRA and hand it over to the IRS, you’re paying a substantial price in what economists call “opportunity costs.”

5.) Not remaining liquid enough in Self Directed IRAs. Remember: Unless you’re in a Roth, you’re going to have to begin making required minimum distributions by April 1st of the year after the year in which you turn age 70½. That means you’re going to have to have some cash or other easily-liquidated assets in the IRA. Indeed, you may simply need the cash flow before you make it to that age. Other scenarios where we’ve seen Self Directed IRA owners run into a cash crunch include suddenly needing a new roof for a house in their real estate IRA – but finding that they are fully invested in real estate. That means they’d have to sell another property within the IRA before they can raise the cash to put a new roof on. Always maintain enough liquidity to take on needed repairs, maintenance, property management bills and other expenses from within the IRA. Don’t paint yourself into a liquidity corner.

American IRA, LLC works with thousands of successful investors pursuing all different kinds of Self Directed IRA strategies from coast to coast. Whether your interest is in alternative asset classes, real estate, land banking, private lending, owning partnerships, LLCs, MLPs, or any one of scores of other strategies, we’d like to put our unique expertise and experience in handling Self Directed IRA transactions and administration to work for you. Call us today at 828-257-4949, or visit our online library and event calendar at

We look forward to working with you.