Understanding the Rules of Self Directed IRAs

Setting up a self directed IRA can be a truly wonderful endeavor. You will be able to make your own investment decisions and can earn a great deal of money to put toward your retirement. However, in order for you to get the full benefits of a self directed IRA and to not get yourself into trouble, you absolutely have to know the rules involved with self directed IRAS. Not knowing and following them can be incredibly dangerous and can turn your self directed IRA experience into a nightmare.
The first thing you need to understand is what is eligible for investment in a self directed IRA. Stocks, bonds, mutual funds, real estate, mortgages, private equity, partnerships, and even gold are all included in this list, among others. What you really need to know then, is what can’t be put into a self directed IRA. The simple answer to that question is life insurance and collectibles. However, you should always check with an attorney before making an investment of any sort.
It is also important that you understand the contribution limits for your self directed IRA. These limits are set each year. For the present year, the limit is $5,000 annually or $6,000 annually for those aged fifty or older. You can check the specific limitations for each year by visiting the official IRS website. Always make sure you stay within these guidelines.
There are also rules on what kind of transactions are considered “prohibited.” Usually, the status of being allowed or disallowed has to do with the party or entity that handles the transaction. Ineligible parties include the IRA owner, the spouse of the IRA owner, any child of the IRA owner, ascendants or descendants of the IRA owner, an entity with a combined ownership of over 50% of the disqualified person, a 10% owner of any entity with a combined ownership of over 50% of the disqualified person, or an employee of that entity. It is also important to understand that self directed IRAs should not benefit the owner until he or she retires. Therefore, these transactions are also deemed prohibited by the IRS: buying a home, using the IRA as loan collateral, loaning IRA money to a child, buying a personal investment property, paying fees of any sort, buying collectibles or antiques, and buying life insurance.
When you really consider these rules and handle all of your transactions and dealings carefully, you will find that they are actually rather simple to abide by. In fact, most people have no problems correctly using their self directed IRAs and then benefitting from them. If you ever have any questions about a particular investment or other dealings with your self directed IRA, it is always in your best interest to contact an attorney or another professional who can help you to understand the limitations and regulations of your IRA. As long as you always deal honestly and competently, even if that has to be accomplished through a third party, you should have no problems.

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