IRA Investments: Trustee, Self-Directed IRA, and Self-Trading
If you have a trustee for your IRA retirement account, be aware that many of them will not act as trustees if unconventional investments are involved. This includes self-directed IRA for real estate. In this case, the IRA owner will have to find their own trustee to provide the necessary services. It is possible to find a trustee online, but you should start by asking your CPA to see if there is anyone they recommend. If you’re looking online, start by searching for “self-directed IRAs.” This search will return a list of qualified trustees who can manage your account and any unconventional investments. Non-bank organizations are approved by the IRS and can act as trustees for your account. The trustees who manage real estate investments will also oversee all other investments, including stocks, mutual funds, and bonds. The fact that they also deal in real estate gives them an advantage when competing for business. Most of the time, trustees will not handle an account that involves unorthodox investments.
When you find a trustee, check with your CPA before taking any other steps. In addition to advising you on the best IRA, your CPA can perform a credibility check that will determine if your selected trustee is professionally and financially stable. It is very important to have the right trustee to manage your investments. The wrong administrator can put all your assets at risk.
Self-Traded IRA
There are strict rules that apply regarding any act of self-trading. Autotrading occurs when the IRA account holder uses the funds in the account to meet personal financial goals. If his transactions do not meet IRS guidelines, the transaction will be examined. The IRS and the Department of Labor (DOL) will work together to determine if the transaction is permissible and legal.
There are many cases in which the IRS will consider a self-dealing transaction. If you buy any stock in a corporation that is closely held, especially if the IRA owner is an officer, the IRS will treat the transaction as a proprietary transaction. Another example is using funds in IRAs to buy a vacation home for the account owner to use. There are other situations that can be considered self-traded, so it’s always best to check with your CPA if you intend to invest in anything other than your typical stocks, bonds, and mutual funds. If you are found to have violated any rules related to prohibited transactions, your IRA tax-free status could be jeopardized. You may also face penalties. Also note that if your trustee engaged in prohibited transactions, that person will face a 15% excise tax on the amount involved in the transaction.
It is best to stay away from any investment that seems untraditional. If you want to expand your investments in IRAs, talk to a financial advisor or your CPA to determine what types of transactions are allowed. You don’t want to risk losing your tax status or incurring penalties.
IRA owners can face many risks with certain IRA investments. Those investments may lose their tax-free status, which could result in a large penalty. It is important to follow the traditional and Roth IRA rules to avoid any problems related to other investments. Real estate investment is allowed as long as the rules are followed. It is possible to rent one more property with the funds in your IRA. Remember that any rent collected will be considered another source of income, and this amount will be subject to tax.
Learning all the IRA rules and regulations will go a long way. While not everything is explained, many questions can be answered simply by reviewing the IRA rules. If you have any further questions, feel free to ask your CPA. You don’t want to put your assets at risk.