Top 6 Frequently Asked Questions about Self-Directed IRAs

Self-directed plans are becoming more widely known and used by savvy investors to build tax-deferred or tax-free wealth for retirement.

Advanta IRA is one of the nation’s leading self-directed account administrators and as such encounters questions from many people who want to know how they can take control of their investment funds and decisions. Below are six of the most commonly asked questions regarding self-directed IRAs.

1. What type of self-directed plan is right for me?

This is a good question because there are several different types of retirement plans that can be self-directed. Those include traditional and Roth IRAs, simple employee pension (SEP) plans, savings incentive match plans for employees (SIMPLE), and the individual(k), also known as the solo 401(k). The type of plan you choose depends on several things that only you can determine depending on your current situation and your plans for your future.

Traditional IRAs, SEP, SIMPLE, and individual(k) accounts allow tax-free contributions. Distributions are taxed at retirement age when you begin making withdrawals from your account.

Roth IRA contributions are made after tax, providing tax-free growth and withdrawals when you begin taking distributions, as long as you are 59 ? years old and have had the account for at least five years.

Consult with your accountant or other trusted financial advisor to decide which plan is best for you. Each has varying requirements pertaining to eligibility, contributions, and distributions. Understanding the rules for all accounts can help you make the decision that suits your needs.

2. How do I fund my account?

Funding your account is somewhat easy. If eligible, you are allowed to make a yearly contribution to an established account. The amount you can contribute depends on the type of account you have. You can also transfer funds from an existing IRA or rollover funds from a former employer’s plan.

3. What type of investments can I make?

The greatest draw of self-direction is the many different types of alternative investments permissible in these accounts and the IRA owner’s ability to choose his or her own assets. Real estate, precious metals, oil and gas options, futures trading and foreign exchange, foreign property holdings…and much more…are all allowed investments.

4. What investments are not allowed in my self-directed account?

The only investment types the IRS prohibits in these accounts are life insurance contracts and collectibles. Internal Revenue Code 4975 states: collectibles include works of art, rugs, antiques, metals (other than certain approved gold, silver, and palladium bullion), gems, stamps, coins, alcoholic beverages, and other tangible personal property as may be defined by the Secretary of Treasury.

5. Can my IRA partner with others or with myself to make investments?

Your IRA can partner with virtually anyone, including yourself or another IRA, in order to acquire capital to make an investment. Just keep in mind that your IRA cannot purchase an asset from or sell an asset to a disqualified person.

6. Who are disqualified persons and what is considered a prohibited transaction?

Disqualified persons are those whom your IRA cannot interact with. Doing so would be considered a prohibited transaction, which can cause heavy penalties or even disqualification of your retirement account.

Disqualified persons include:

  • The IRA holder and his or her spouse
  • The IRA holder’s lineal ascendants, lineal descendants, and spouses of lineal descendants
  • Investment advisors and managers
  • Any corporation, partnership, trust or estate in which the disqualified person maintains control as a president, manager, etc.
  • Anyone providing services to the IRA, such as the trustee or custodian

Some examples of prohibited transactions include:

  • Vacationing in a rental owned by your IRA and allowing a disqualified person to do the same
  • Purchasing a property from your IRA or any disqualified person
  • Selling a property to your IRA or to any disqualified person
  • Lending money from your IRA to yourself or a disqualified person

For more explicit rules regarding prohibited transactions and disqualified persons, read IRC 4975. Consulting with a certified public accountant or other financial professional is advised to ensure your account is compliant with IRS regulations.

Take control. Build your own wealth. Secure your own future. Contact Advanta IRA today.

Advanta IRA offers weekly events at no cost for individuals to learn how to take control of their own retirement accounts and build tax-free or tax-deferred wealth for retirement.

If you have questions about this article or wish to speak with someone about opening an account, please contact us.

About Jack Callahan

Jack proudly earned his bachelor’s degree in finance and multinational business from Florida State University and his law degree from the University of Florida College of Law. He established Advanta IRA in 2003 and has steadily nurtured and grown the company and the team every year since. Prior to founding Advanta IRA, Jack delivered specialized counsel to real estate investors, small business owners, and real estate professionals on tax, legal and financial matters. As an industry expert, Jack is a frequent speaker on self-directed retirement plans. He is an accredited continuing education instructor for the Florida and Georgia Bar Associations, Florida and Georgia Real Estate Commissions, and The American Institute of Certified Public Accountants.