Self-Directed Individual Retirement Accounts (SDIRAs) offer investors an attractive way to save for retirement while still exercising more control over their investments. While traditional and Roth IRAs only typically allow investments such as stocks, bonds, mutual funds, and those combinations as permitted assets within an SDIRA are typically wider, including real estate purchases/ownership of precious metals/cryptocurrencies/real estate investments among others - however the IRS imposes stringent restrictions to maintain tax advantage status of SDIRAs; in this article are assets/transactions explicitly restricted within SDIRAs.
The IRS clearly prohibits collectibles and life insurance as investment options within an SDIRA. Collectibles include art, rugs, antiques metals (with certain bullion exceptions), gems stamps coins containing precious metals or alcohol beverages and any tangible personal property listed by them as prohibited investments.
Life insurance contracts are also not permitted as their tax advantages could conflict with those provided through an IRA account.
Under SDIRA guidelines, S Corporation stocks are not permissible investments as S Corp shareholders have strict criteria which must be fulfilled for them to become shareholders of an S Corp - this rule differs from C Corporation stocks which can be considered legitimate investments.
One of the primary restrictions placed upon SDIRAs is their prohibition against engaging in transactions which could be seen as "self-dealing". Self-dealing refers to using retirement account funds for personal gain instead of using them solely to benefit retirement accounts. Furthermore, the IRS has implemented rules regarding "disqualified persons," who cannot make transactions involving an SDIRA - this can include members such as an IRA owner's spouse, their ancestors, lineal descendants, as well as spouses of lineal descendants as well.
Example: if you own real estate property, using SDIRA funds cannot be used to acquire it. Furthermore, if your SDIRA owns rental property neither you nor any disqualified individual may use or reside within it.
Lending money from an SDIRA directly or indirectly to yourself or another disqualified person is prohibited and could lead to its disqualification as a tax-advantaged account.
All investments made should serve solely to benefit a retirement account and should therefore avoid transactions not conducted at arm's length, where transactions take place as though all parties involved were strangers to one another.
Navigating the complicated regulations surrounding Self-Directed IRAs can be complex. Failure to adhere to IRS rules could result in heavy fines or the cancellation of tax-advantaged status for your IRA; so, seek professional financial advice and study all applicable IRS regulations prior to investing in one. By understanding and working within their framework provided, investors may create more diversified retirement portfolios and reduce risks.