A Self-Directed IRA is one of the most efficient ways to diversify yourself out of the stock market. With so many investors the world over viewing the stock market as a giant bubble, that may be more relevant now than ever.

One of the tools that investors have available to them when they direct their own IRA is private money lending. In a recent blog post at Private Money Lending Guide, some critical hints and tips were given that help explain the process. But at American IRA, our goal is to fully educate people about their options, which means there are a few important things you need to know before you consider private lending through your Self-Directed IRA:

1. Prohibited Transactions in a Self-Directed IRA

What will you need to know first? Simple: what you’re not allowed to do. Although you have a lot of freedom when it comes to lending money, making a loan from a Self-Directed IRA can be a horse of a different color.

Here’s what you need to know:

• “Self-dealing” with your IRA is a no-no. You can’t simply write out a check to your IRA at any given moment for any given purpose, which is why it’s so important to know the rules. If you have a lack of funds in your IRA you may need to transfer from another IRA.
• Loans cannot be used in order to increase your IRA’s purchasing power. Loaning yourself money via an IRA to buy up property is prohibited.
• Selling property to your IRA, or using IRA property as security for a loan, also complicate issues and are therefore prohibited.
• Paying yourself as the president of an IRA-owned LLC is prohibited, because it would essentially be a way of skirting the fees associated with early withdrawals from your tax-protected account.

If you want to know more about private lending as it relates to an IRA, visit our Self-Directed IRA Knowledge Center.

2. To Loan, You’re Going to Need to Self-Direct

If you’ve never directed your own IRA before, it can be an intimidating process. But the quickest and most efficient way to ensure that you’re able to access all of the investment options you have available to you is to self-direct.

What’s involved with self-directing your own IRA? You’ll want to first open a Self-Directed IRA account with a reputable IRA administration firm. Like American IRA, Self-Directed IRA Administration Firms don’t give you financial advice relating to your specific assets, but rather act as an administrator of the account. You’re still the one in charge.

From there, you can ask about their procedures for handling the paper work of a loan. Make sure to keep adequate track of all paperwork from here on out, going so far as to make copies of everything in order to ensure that your paperwork is squared away.

3. There is Always More to Learn

If you’re new to the world of Self-Directed IRAs, then it only makes sense that something as complicated as tax-protected investment accounts being used for loans can throw you for a loop. But you might be surprised to learn that all investors found themselves in your spot at one point. If you know how you want to build your wealth and you know that directing your own IRA is the way to get you there, don’t give up.

To learn more, visit our Prohibited Transactions page so that you don’t go too far down the wrong path before you make your decision. There you’ll learn more about the prohibited transactions for investments you cannot make with your IRA. If you’re going to maximize the value of a tax-advantaged retirement account, it only makes sense to play by the rules so that you aren’t overwhelmed with penalties.

Keep reading AmericanIRA.com or call us at 1-866-7500-IRA(472) if you’re interested in learning more about directing your IRA and becoming more invested in your retirement future.