Here are some general questions, rules and regulations to follow and some ways to plan and protect your investments.
We’ve complied our own and some guest
blogs from the experts
Our webinars provide information and tools to simplify Self-Directed investing
The IRS has an important message for tax payers with IRAs. IRS Publication 3125
The IRS defines a prohibited transaction as follows:
“Generally a prohibited transaction is any improper use of your IRA account or annuity by you, your beneficiary or any disqualified person. Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of lineal descendant).”–Source IRS Publication 590
Prohibited Asset Types, Disqualified Persons, and Prohibited Transactions:
A broad range of alternative investment options, which offer flexibility, are available to choose from for Self-Directed retirement accounts. There are rules that govern retirement accounts which Self-Directed investors must follow. The IRS rules which place some limitations on IRA investments relate to: Types of investments you can hold in a retirement account
Prohibited Asset Types
IRS rules allow you to invest in any type of investment other than the following:
Life insurance contracts
Collectables such as: Alcoholic beverages, Artwork, Antiques
Certain other tangible personal property considered to be collectible by the U.S. Treasury
Coins (there are exceptions for certain U.S. Treasury minted coins)
Metals (there are exceptions for certain types of bullion)
Stock of Sub-Chapter S-Corporations
The purpose of your retirement plan is to benefit you when you retire and not before. This is the reason that certain transactions are not allowed- if they are interpreted as providing immediate financial gain or current personal benefit to the account holder or other disqualified persons.
Some prohibited transactions include:
Sale or exchange, or leasing, of any property between a plan and a disqualified person
Lending of money or other extension of credit between a plan and a disqualified person
Furnishing of goods, services, or facilities between a plan and a disqualified person
Income or assets of a plan being transferred to, used by, or used for the benefit of, a disqualified person of the income or assets of a plan
Act by a disqualified person who is a fiduciary whereby he deals with the income or assets of a plan in his own interests or for his own account
Receipt of any consideration for his own personal account by any disqualified person who is a fiduciary from any party dealing with the plan in connection with a transaction involving the income or assets of the plan
The IRA holder and his or her spouse
The IRA holder’s lineal descendants (children, grandchildren, etc) and their spouses
The IRA holders lineal ascendants (parents, grandparents, etc)
Anyone providing services to the IRA
Any corporation, partnership, trust, or estate in which a disqualified person(s) have a 50% or more combined ownership is owned by multiple disqualified persons or disqualified entities.
Fiduciaries – the IRS defines a fiduciary as anyone who exercises any discretionary authority or control in the managing or administering of your retirement account, or in managing or disposing of its assets or anyone who provides investment advice to your retirement account for a fee, or has the authority or responsibility to act in such a capacity
Internal Revenue Code Section 4975 restricts the types of investments and transactions that can be conducted inside a retirement account and governs the consequences if your retirement account conducts a prohibited transaction or owns a prohibited asset. For a full definition of prohibited transactions and disqualified persons under IRC 4975 click here: IRC 4975 – Prohibited Transactions and Disqualified Persons
The intent of your retirement plan is to benefit you when you retire and not before, therefore transactions that the IRS interpret as providing current personal or benefit financial gain to you, your direct family, your business, or other disqualified persons are not allowed. Below are examples of self-dealing which would be considered prohibited transactions:
Your Retirement Account Cannot:
Hold real estate that you or other disqualified persons live in or use in any way while the property is held in your retirement account.
Purchase real estate owned by a family member of lineal descent (i.e. your father or mother).
Real estate in your retirement account must be for investment purposes only.
Your retirement account typically should not purchase equity shares in a business/entity in which you (as the account owner) or a disqualified person or entity owns a majority share; or in which you or a disqualified person or entity holds a role of or similar to a managing member, has signing authority or check writing authority.
Your retirement account cannot loan money to yourself or other disqualified persons.
One or more transactions conducted leading up to making a prohibited transaction, such your IRA lending money to a non-disqualified person, who then lends money to their spouse, who then loans it to you personally. Whether done intentionally or accidentally, it is prohibited.
Consequences of Prohibited Transactions
The investment being treated as a distribution, which may trigger a taxable event
An early distribution penalty of 10% if you are under the age of 59½ A 10 percent penalty for early distribution
You may incur a 15% excise tax on the amount involved in the prohibited transaction
You may be subject to additional penalties which can accrue for under-reporting for the years before the IRS discovers the prohibited transaction
Successful Investors are informed Investors
By being an informed investor you can save yourself both time and money. Use these resources when considering a new investment.
360 Degrees of Financial Literacy – Retirement Planning Guide
Non-Profit Financial Health Guide
Department of Labor – Top 10 Ways to Prepare for Retirement
Department of Labor – Savings Fitness: A Guide to Your Money and Your Financial Future
Department of Labor – Taking the Mystery Out of Retirement Planning
What you should know about your Retirement Plan – Defined Benefit and Defined Contribution Plans
Social Security Retirement Estimator
Retirement Savings and Divorce
Department of Labor- Qualified Domestic Relations Orders
A Successful investor requires being a knowledgeable investor. At iPlanGroup, we are here to help. Preventing investor fraud depends on being an informed investor. Below is a list of government and industry resources to help make sure your investments are secure.*
Use these resources to review your investment scenario prior to requesting funding, and protect your hard-earned money. While the IRS nor IRA administrators approve or guarantee investments, it is also in your best interest to have each investment reviewed by a qualified CPA or investment adviser. If you have any further questions, give us a call! We’re always here to help.
Resource site provided by the American Institute of Certified Public Accountants
Non-profit Investor Education Foundation- Resource dedicated to your financial health
North American Securities Administrators Association Website
U.S. Securities and Exchange Commission Investor Website
Securities and Exchange Commission’s Investor Tips Page
SEC Fraud Prevention Page
SEC Potential Investment Questions
SEC Investment Guide for Senior Citizens
SEC Investor Claims Funds
Secretary of State Business Search
Each states Secretary of State department has an online database to search for existing entities. Use this resource to search for a business that you are intending to invest in, loan money to, or partner with; in order to ensure that it is a valid entity approved by your Secretary of State.
Secretary of State
* All investments carry a risk, including loss of principle. No government or IRA Administrator approves or guarantees investments.*