Self-Directed IRA rules you need to know

Self-Directed IRA Rules You Need to Know

What are the Self-Directed IRA Rules that govern how you can invest your money? You’d be surprised at the amount of freedom you have—but only once you set up the account properly and stay within those rules. In fact, many investors don’t know just how many asset classes they can invest in when they have a Self-Directed IRA. Investors can use a Self-Directed IRA to place retirement investments in precious metals, real estate, private stock, tax liens, and more. However, doing so requires a strict adherence to the rules if investors are going to avoid the penalties that can cancel out any tax benefits they might have received.

Self-Directed IRA Rule #1: Don’t Mix Personal Assets with Retirement Assets

This is one of the key rules of thumb that will help you understand how Self-Directed IRAs work. While you can use a Self-Directed IRA to place an investment in a piece of real estate, for example, that piece of real estate is not something that you can use personally. That includes avoiding using it for yourself—you can’t stay in a home that your IRA owns. Similarly, you should avoid working with “disqualified persons” in an investment like this, which means transacting with a person who is either part of your lineal family, or someone you have a “significant business relationship” with. For example, a child of yours might like a property that you have within your self-directed IRA, but if they rent it from your IRA, it means you’re receiving a personal benefit from the transaction.

The fact that you receive a personal benefit from this property then means that it can be considered a personal investment—an early withdrawal on the retirement, subjecting you to taxes and penalties. This is obviously something that investors are going to try and avoid as it can eat into your profits.

Self-Directed IRA Rule #2: Work with a Self-Directed IRA Custodian

To help facilitate the process of administering the account properly, a Self-Directed IRA is best placed in the hands of a Self-Directed IRA custodian; in fact, you’ll have to do this. This might sound like an unnecessary and overly complex step, but once you understand how it works, you’ll see that it’s fairly straightforward. It simply means that you designate someone like a Self-Directed IRA administration firm to administer your account. They keep the paperwork in line and ensure that your account is being run according to the rules and regulations of the government.

What about the control over the investments themselves? That remains with you. You can direct the Self-Directed IRA custodian to handle the purchases, for example, or sales, which will go through upon direction from you and proper paperwork filed from the Self-Directed IRA custodian. In other words, you’re in charge. You still make the decisions, and you can still work with your own financial adviser. The Self-Directed IRA custodian’s job is to administer the account and properly carry out the valid buy or sell orders you place within it.

How to Use a Self-Directed IRA

A Self-Directed IRA can be a powerful way to invest in retirement, granting you access to a wide range of retirement assets you might not have thought you could enjoy in a retirement account. To use one properly, you’re going to have to make sure that you work with a Self-Directed IRA administration firm. This will help keep you within the bounds of real estate investing while also taking advantage of all the things you can do with a Self-Directed IRA.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at