By Jim Hitt, American IRA
[Note: American IRA was an exhibitor at SCACPA’s Spring Splash Accounting Conference.]
The Self-Directed IRA can be one of the most transformative tools an investor employs for a secure retirement. But while taking advantage of a Self-Directed IRA’s tax protections to invest in alternative retirement assets such as precious metals and real estate, it is important to recognize there are restrictions.
To avoid being hit by penalties, here are some of the common prohibited transactions in the Self-Directed IRA.
Prohibited Transactions in a Self-Directed IRA
Prohibited transactions refer to investments you will be expected not to make when using a Self-Directed IRA. While you can use a Self-Directed IRA for a wider variety of investment classes than stocks and bonds, avoid these strictly regulated and prohibited transactions:
- Alcoholic beverages. Wine is a particularly popular investment, as it keeps well and rare wines can increase in value over time. But investors cannot use a Self-Directed IRA to protect any alcoholic beverages.
- Collectibles. Antiques and similar items could fall under the category of “collectibles,” making them prohibited transactions for the purposes of investing with a Self-Directed IRA.
- Some precious metals. When you invest in precious metals within a Self-Directed IRA, it is important to work with a reputable dealer. Double-check that the specific bullion or coins you are purchasing are in line with approved metals for a Self-Directed IRA.
- Art. Fine art is a popular investment for those who want to diversify their assets out of the stock market and other assets tightly tied to the global economy. However, art investments will have to be made without the tax protections of the Self-Directed IRA.
- Using a Self-Directed IRA for loan collateral. Sheltering retirement investments from outside influences also means sheltering them from the possibility of being collected after defaulting on a loan. Since collateral is not the purpose of Self-Directed IRAs, any such transaction would be strictly prohibited.
- Life insurance policies.
Understanding the limitations of the Self-Directed IRA maybe is not the most fun part of developing your retirement strategy. But it is integral if you are going to do it the right way and take advantage of the opportunities offered within self-direction.
For more information on prohibited transactions or disqualified persons within a Self-Directed IRA, continue reading the information at www.AmericanIRA.com or call 866.7500.IRA.