Frequently Asked Questions of the Self Directed IRA

We’ve previously discussed the Broad Financial Self Directed IRA on this blog, but let’s face it; this stuff is confusing! That’s why we seek advice from informed, innovative minds in the first place when we’re investing. That being said, here are a few of the most frequently asked questions when it comes to a self directed IRA: Can my self directed IRA be used to buy non-standard assets, such as real estate? Certainly. When the Employee Retirement Income Security Act of 1974 was passed, the responsibility of investing and saving for retirement was shifted from the employer to the employee. A year later, IRAs were created as a means for people to direct where they were investing their retirement funds. There are only two kinds of investments that are prohibited under both ERISA and the IRS Codes, and purchasing real estate is not one of them But can my self directed IRA purchase real estate that I currently own? No it may not. Doing so is in strict violation of IRC § 4975, and doing so is what is referred to as a “self-dealing” transaction. You have to be careful, because there are a plethora of different companies that claim you CAN buy real estate that you already own with your self directed IRA, and this is simply not true. If a family member is not a disqualified party, can I purchase their property and let them rent it? Yes and no. While on paper everything seems kosher, if your relative rents property owned by your IRA and fails to make payments, you’ll be in violation of the exclusive benefit rule. If this occurs, your IRA may be participating in a prohibited transaction. That’s why renting IRA-owned property to friends and family is rarely recommended.