Self Directed IRA Rules and Regulations
A self directed IRA is an Individual Retirement Account or Individual Retirement Arrangement provided by financial institutions, that allows you to make alternative investments for retirement. Because alternative investments are allowed in this type of IRA, all assets must be held by a qualified custodian on behalf of the account owner. Some alternative investments in these accounts include real estate, precious metals, intellectual property, etc. When investing in these type of accounts, your custodian should be sure to explain all rules and regulations and make sure that all of your investments are in good standing the Internal Revenue Service.
Prohibited Investment Practices
Self directed IRA’s do have more rules than traditional forms of IRA’s because alternative investments are allowed. Because of this, there are many rules in place to prevent fraudulent investments.
• The IRS prohibits any investments in life insurance.
• Investments in collectibles is also prohibited. This includes, rugs, artwork, gems, and other personal property.
• Since IRA’s are meant for you to invest in your retirement future and provide you with future tax benefits, any investment made to benefit you in the present is prohibited.
• Most of these rules were put in place to prevent the practice of self dealing. This is a conflict of interest in which a trustee or custodian takes advantage of their position and invest according to their own interests rather than the account holder.
• Investments in real estate
• precious metals
• private equity etc.
Real estate investments and precious metals investments are permitted as long as the investment is handled by a custodian
As you can see, there many self directed IRA rules in place in order to prevent fraud and illegal investments. These rules are also in place to protect you from making a bad investment and owing the IRS taxes. Always be sure to research your investments and consult with your custodian.