What Transactions Are Prohibited for a Self-directed IRA?

Online, June 5, 2013 (Newswire.com) - While a self-directed IRA opens the opportunities for investors to pursue private investments this IRA structure does have some limitations. The IRS does not want the holders of these tax sheltered accounts to benefit pre-retirement. To keep with the IRS's guideline avoiding transactions that involve disqualified persons is highly advisable.

Self-directed IRAs, commonly know as real estate IRAs or checkbook IRAs are individual retirement accounts that turn the management of the account back to the account holder. Traditional IRAs are typically managed by a third party that makes many of the investment decisions with little to no input from the account holder. As many are interested in pursuing alternative investments, but would still like to benefit from the tax sheltered accounts, the self-directed IRA has become one of the ultimate retirement tools.

The Internal Revenue Service has established a number of laws held in the Internal Revenue Code that mandates the decisions investors can make through the self-directed IRA. Prohibited transactions with an IRA are transactions that cross the line the IRS has set. As a simple guideline it is recommended that investors do not participate in any deals or investments that involve a disqualified person.

Here is a list of disqualified persons according to the IRC:

- Self
- Spouses
- Parents
- Grandparents
- Children
- Grandchildren
- Custodian (or other third party managers of the self directed IRA)

This list and simple structure to follow, however, it does not incorporate ever situation that may be available. For additional guidelines here are exact restrictions the IRS has imposed against disqualified persons:

1, Short sale, exchange or lease of any property. For example, one cannot buy an apartment complex and begin renting one of the spaces to children.

2, Loans and extensions of credit. One cannot give his or herself a loan from the IRA to buy the next car or house.

3, Furnishing services or goods to your IRA. If the IRA owns a complex he or she cannot have a child's lawn care business take care of the landscaping for that property

4, If the IRA owns a business the account holder cannot use the trucks or other vehicles for personal use. The same applies to all assets owned by the IRA or through the IRA.

Although this list does not include all possible given circumstances it should help investors understand the outlines from the IRS and what transactions can and cannot be engaged in with an IRA.

Self directed IRAs are highly advisable to those investors who would like to get started with real estate by investing behind a tax-sheltered account. The Roth IRA allows investors to invest taxed dollars to grow and be withdrawn upon retirement without any further taxation; the Traditional IRA allows investors to invest pre-tax dollars only to be taxed when the funds are withdrawn for retirement-the funds can grow tax deferred.

About SilverStone

SilverStone.net is an investment firm that specializes in assisting investors as they establish their IRAs by transferring fund from their 401(k) or their traditional IRA into their self directed, real estate, or checkbook IRA. This gives them the control of an independent investor with the tax shelter of any other retirement account.