What you Can or Cannot Purchase with a Self Directed IRA

There are limits into what you can or cannot invest in with your Self-Directed IRA Account (SDIRA). For example, don’t try adding antiques or artwork to your self directed IRA because Title 26 Sections 408 & 4975 of the IRS code strictly prohibits these types of investments.  And when it comes to real estate, keep your transactions at arm’s length. This means that certain family members and associates cannot actually reside in a property held by your IRA nor can they be involved in an investment.

Specifically, what are prohibited transactions?  IRC 4975(c) (1), identifies prohibited transactions to include any direct or indirect:

• Selling, exchanging, or leasing, any property between a plan and a disqualified person. For example, your IRA cannot buy property you currently own from you.
• Lending money or other extension of credit between a plan and a disqualified person. For example, you cannot personally guarantee a loan for a real estate purchase by your IRA.
• Furnishing goods, services, or facilities between a plan and a disqualified person. For example, you cannot use personal furniture to furnish your IRAs rental property.
• Transferring or using by or for the benefit of, a disqualified person the income or assets of a plan. For example, your IRA cannot buy a vacation property you or your family intends to use.
• Dealing with income or assets of a plan by a disqualified person who is a fiduciary acting in his own interest or for his own account. For example, you should not loan money to your CPA.
• Specific Collectibles include: Artworks, rugs, antiques, metals, gems, stamps, coins, alcoholic beverages, and certain other tangible personal property.

If you participate in a transaction which does not fit within these guidelines, the IRS will analyze the specific facts and circumstances in order to decide whether you have engaged in a prohibited transaction.

Specifically, who are disqualified persons?  A disqualified person (IRC 4975(e) (2)) is defined as:

• The IRA owner
• The IRA owner’s spouse
• Ancestors (Mom, Dad, Grandparents)
• Lineal Descendents (daughters, sons, grandchildren)
• Spouses of Lineal Descendents (son or daughter-in-law)
• Investment advisors
• Fiduciaries – those providing services to the plan
• Any business entity i.e., LLC, Corp, Trust or Partnership in which any of the disqualified persons mentioned above has a 50% or greater interest.