The idea of a self-directed IRA may be appealing to those with an entrepreneurial spirit, and a dislike for traditional stock and bond based retirement options.
Self-directed IRAs can be a great option, but there are some potential pitfalls and tax landmines if they are not set up, or administered correctly.
What is a Self-Directed IRA?
A Self-Directed IRA is an IRA where the steward of the account allows the IRA to invest in any legally allowable investment, such as Real Estate, precious metals, or private company stock. With that said, there are investments that are specifically restricted per Internal Revenue Codes (IRCs) and engaging in a “prohibited transaction” could end up costing you BIG in taxes.
What can a Self-Directed IRA invest in?
Under the current law, Self-Directed IRA’s are barred from investing in:
- Collectible Items such as art, coins, stamps, cars, etc.
- Life Insurance
- S-Corp Stock
- Investments from disqualified persons, such as most family members, friends, or certain business partners.
Most commonly, as stated above, the most common investments for Self-Directed IRAs are:
- Real Estate
- Secured Loans for Real Estate (trust deed lending)
- Private Small Business Stock or LLC Interest
- Gold and Silver
If you’re thinking about creating a Self-Directed IRA, you MUST ensure that you have it prepared and administered by a professional. There are too many complexities for this to be a DIY project.
When you schedule your Family Wealth Planning Session with us, be sure to let us know about any self-directed IRAs so that they do not get inadvertently thrown into probate or guardianship litigation when you die or if you become incapacitated. To schedule a complimentary estate planning meeting valued at $850.00, mention this article when you email clientcare@lcolawfl.com.
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