As you do research on this subject, the more you’ll see that IRS code allows for a wide open area of freedom with Individual Retirement Accounts and in fact, it’s not federal government that discourages self-directed IRAs – it’s the Wall Street firms that wish to maintain control of your retirement account. After all, by having a TSD IRA, it’s you that is earning the larger returns, as opposed to them.
The most typical question has always been, “can I obtain real estate using my IRA?” The answer is, of course, yes.
ERISA shows the investment constraints of IRAs in IRC Section 408. An IRA cannot acquire policies on life insurance or collectible merchandise such as art pieces, liquor, carpets or antiques, jewelry or some metals, postage stamps, or some coins.
IRA prohibited transactions are listed in IRC Section 4975; prohibited transactions are any direct or indirect:
(A) sale or exchange, or leasing, of any property between a plan and a disqualified person;
(B) lending of money or other extension of credit between a plan and a disqualified person;
(C) furnishing of goods, services, or facilities between a plan and a disqualified person;
(D) transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a plan;
(E) 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; or
(F) 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.
A disqualified individual is the IRA participant, the husband or wife of the participant, ascendants of the participant (mother/father), descendants of the participant (daughter/son), wives or husbands of the participant’s descendants (son or daughter’s spouse) and fiduciaries of the plan (custodian/trustee, TSD IRA Manager).
Exactly what does that mean in plain English? A disqualified individual can’t:
Personally purchase a possession from or sell a possession to your IRA.
Extend credit towards your IRA or take a form of credit from your IRA (loan towards the plan, borrow from the plan or utilize it as collateral).
Extend goods, services or facilities to the IRA or utilize the assets of the IRA for yourself.
Also, a fiduciary (person that controls 10% or greater of the IRA) cannot deal with the IRA for their own benefit or have receipt for consideration where they are involved in a transaction with the plan.
In a nutshell, Congress gives IRAs a tax advantage for a good reason; they don’t want people bypassing that reason but receiving this advantage.
You will find exemptions and ommissions to these forbidden operations, however they must be treated very cautiously and typically require acceptance from the Department of Labor.