For many investors, the idea of storing a majority of their wealth in an account that even they won’t touch for many decades to come is something that seems…uncharitable. But while it’s important for any investor to take care of their long-term financial situation with a Self-Directed IRA, it’s also important to remember that there are many investors out there who want to make sure their money goes to good use. The question is, is it possible to use a Self-Directed IRA for a charitable cause? And if so, how?
A Word on Charitable Donations
First things first: A Self-Directed IRA is not an ideal vehicle for charitable contributions. This is a retirement vehicle, so we think it is worth noting that right off the bat. If you are looking for the ideal way to donate to charity for tax benefits, be sure to consult the IRS website to see what kinds of rules they have in place for charitable donations.
What about Self-Directed IRAs? With that out of the way, it is worth noting that even a retirement account, applied the right way, can have a tremendously positive impact on the world. Here is how.
Creating a Community Impact Through Investing
At an article at MarketWatch, you will find out different way’s investors have used Self-Directed IRAs to help problem-plagued areas. For example, a couple from New Orleans used their Self-Directed IRAs to help an investor rehab a home that had been devastated by Hurricane Katrina. Using the money already present in their accounts, the couple was able to renovate a home after the hurricane damage. Later, the rehabbed home would sell for a profit. The money the couple received through the sale of the home then reverted back to the IRAs of the original investors.
In other words, the investors did a good thing with their portfolio—something that could benefit the society around them—and did it in a completely legal, above-board way. That is the power of a Self-Directed IRA. However, it’s also important to note that people like this understand the rules and how to play within the rules—and that’s an essential part of being an effective Self-Directed IRA investor who can get these sorts of things accomplished.
How to Understand the Rules of the Self-Directed IRA
In truth, the rules of the Self-Directed IRA are the same as any other type of retirement account. Self-Directed IRAs are not a unique account type—it is just a matter of how you choose to approach your retirement account. With a Self-Directed IRA, however, you do have a lot more freedom to choose your investments, which is why so many investors need to know these rules when they step out on their own and start making their own investment decisions.
The key point is this: avoiding prohibited transactions, especially with disqualified persons. A disqualified person is someone with whom you might have a prior relationship—such as a family member or a beneficiary on the account. Since retirement assets are not to be used for immediate personal benefit, if you were to rehab a house and then sell it to someone you know, that would not be a valid retirement investing transaction. However, if you were to do what the couple above did—rehabbing a home within a retirement account and benefiting the society around them—then it is possible as long as you follow the rules.