Self-Directed IRA

9 Replies

Hi there Percy, I am inquiring of different strategies, penalties, options, etc. when using these IRA'S. I've never actually had the experience of using one for real estate yet, however, I wanted to talk to some people who are using them now and collect some of the information about what is happening with these accounts.

@Donald Latson

What can be done with a self directed IRA or 401k is almost unlimited. There are so many possibilities, that it's hard to come up with enough examples to paint a good broad picture of all your options. The main restrictions are on the people and entities with which your IRA or 401k can transact. These are "disqualified persons" and include you and many of your family members.

So while a self directed IRA or 401k can invest into real property, you wouldn't be able to direct your IRA to buy a piece of property that your father currently owns, for example. Similarly, while you could write a check out of your Solo 401k plan for a loan for someone to start up a business, you could not do so if that someone were your spouse, or your son for that matter. These "prohibited transaction" rules help to ensure there are no conflicts of interest between what is best for your retirement account and what may be best for you. As a fiduciary to your own retirement account, you're not allowed to invest those funds in your own self interest or engage in what is commonly referred to as "self dealing." The penalties for doing so are pretty stiff, so it really is best to understand the rules before transacting.

Other than that, these retirement accounts can be really powerful, flexible, relatively low cost vehicles that provide great tax benefits without keeping you locked into the stock market like traditional retirement accounts.

What did you have in mind for your investing?

Perhaps SDRPs (Self Directed Retirement Plans) can be summed up by saying that they can be invested in "anything which is not a prohibited transaction".

Prohibited transactions are spelled out the tax code as cited by another poster.