Be Careful with Self-Directed IRAs

Be Careful with Self-Directed IRAs

Thinking of a Self-Directed IRA? Did you hear or see a commercial or receive a solicitation letter about investing in a self-directed IRA? The IRS recently released a notice to taxpayers, warning them about potential problems with some IRA investments. This notice led to many questions from IRA owners about self-directed IRAs.

The IRS Does Not Review or Approve IRA Investments

Keep in mind the IRS does not review or approve investments, endorse investments nor issue any statement that an investment in an IRA is protected because a particular trustee or custodian has been approved by the IRS.

Prohibited Transactions Disqualify IRAs

You want to make sure you are not engaging in a prohibited transaction with your IRA assets. A prohibited transaction is an impermissible transaction between an IRA and a disqualified person. This issue seems to happen more frequently (from our experience) with real estate investment self-directed IRAs. Regardless of the type of investment however, you must be careful and do your due diligence and confirm that the self-directed IRA being offered is from a reputable institution.

Beware of Potential Fraud

Not so long ago, the SEC released a notice about potential fraud and self-directed IRAs. Cases cited in that notice included self-directed IRAs that were involved in real estate transactions, commercial mortgage loans, unregistered securities, bonds and foreign bonds.

Are all self-directed IRAs bad? Will all real estate investment self-directed IRAs lead to prohibited transactions? Of course not, but before moving your assets into a self-directed IRA or IRA LLC, make sure you have all the facts and you consult with your personal tax and IRA planning experts!

Source: IRS Pub 3125 and SEC Investor Alert: Self-Directed IRAs and the Risk of Fraud


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