The Internal Revenue Service (I.R.S) periodically published bulletins regarding transactions that are prohibited with a self-directed IRA (e.g., re-purchasing investments owned personally, purchasing or selling to/from a spouse, child and/or a parent).  Allowable investment options aren’t classified by the IRS, only specific prohibited transactions. Some examples of acceptable that are within the scope of I.R.S. compliance include: investment properties, private mortgage loans, condos, duplexes and tax lien certificates. A good rule to remember is that any asset owned by your self-directed IRA that would be used personally would be constituted as an “indirect benefit” and could jeopardize the tax deferred ­­status of your IRA.  Each self-directed IRA beneficiary has the sole responsibility to ensure they are always in compliance with I.R.S. rules regarding prohibited transactions.

While there are rules that must be adhered to, growing your wealth through a self-directed IRA is limited only by the ingenuity and expert knowledge of the person making the investment decisions.  Directing your own IRA offers the flexibility and control needed to incorporate the most useful and profitable assets to your IRA.  When investing in real estate it provides benefits like compounded interest, asset protection, and potentially a reduction of taxable income.  Coupling a self-directed IRA with investment real estate has proved to be a profitable choice for many investors. Knowing how to ensure the transaction meets the I.R.S. rules will help safeguard your self-directed IRA from any early withdraw penalty.