Though a self-directed IRA offers more freedom and flexibility than most traditional retirement investment options, it is essential to be aware of guidelines regarding the restrictions and limitations of self-directed IRA’s. One of the more important rules applies to prohibited asset purchases and disqualified persons. The I.R.S. specifies that a disqualified person includes any of the following: a spouse, a parent, any children and their spouses, a grandparent, a grandchild and their spouses, any entity of which you have over a 50% ownership in, and any entity that you own over 10% of a partnership.  As the beneficiary of a specific self-directed IRA, you too are defined as a disqualified person, meaning you can’t buy or sell assets to or from yourself and/or your own IRA.  This refers to assets owned prior to self-directing IRA funds and any business involving a disqualified person would be considered a prohibited transaction or self-dealing which may result in your self-directed account no longer being tax exempt.

An additional rule to be aware of with self-directed IRA’s is what’s referred to as an “indirect benefit.” The IRA is solely designated as retirement account. Though a good amount of money may be acquired through a self-directed IRA, none of those funds can be utilized for personal use such as a vacation property, work area, or primary residence. All of these uses violate the terms of what’s allow in an IRA and make the account subject to taxation. A self-directed IRA allows an investor total control how their investment funds are allocated, however, it also requires increased responsibility on the beneficiary of the IRA to ensure that I.R.S. compliance in maintained on the account.

Self-directed IRA’s are one of the best kept secrets for retirement investing. For seasoned and savvy investors that are willing to walk through the process of learning how to use the account property, a self- directed IRA could prove to be a very profitable strategy.