NAFEP Self Directed IRA Blog

Interacting with your IRA is considered a prohibited transaction. So, unrelated, self directed IRA owners will attempt to enter into a reciprocal agreement to loan each others self directed IRA money so that the IRA owners can indirectly tap their funds for personal use.

This is a flawed design and approach. Even though the parties are not automatically on the disqualified list for prohibited transactions, the indirect benefit rule would come into play.

As a self directed IRA owner, you are not allowed to receive any benefit directly or indirectly from your IRA. The entering into a reciprocal arrangement with a third party which results in monies into your own pocket (i.e. the other person’s IRA funds) clearly conveys an indirect personal benefit to you.

To learn more about self directed IRAs go to:

www.nafep.com

www.iracentral.com

Unrelated Business Taxable Income (UBTI) is generated when an Self Directed IRA engages in active business.  A business activity would be one in which the business is buying and/or selling goods and services. A good example would be if you purchased interest in a restaurant , oil and gas exploration, or even a apartment complex. If such income is generated, the IRA has to pay Unrelated Business Income Tax or UBTI.  It is common for self directed IRA owners to invest in some entity such as a LLC  or partnership. If that LLC or partnership conducts business, then the self directed IRA would be subject to the UBTI. UBTI is designed to make the playing field level when a non-taxed entity engages in a business activity against other tax paying businesses.

To learn more about self directed IRAs and self directed IRa custodial services go to:

www.nafep.com

www.iracentral.com

The Self Directed IRA owner makes their annual contribution directly into the bank account of the LLC rather than with the custodian of the  Self Directed IRA. In this case, you are personally interacting with your ICO (IRA-LLC).  That is considered a prohibited transaction. Additionally, an IRA contribution is only considered valid when it has been received by the custodian.

To learn more about self directed IRA or IRA custodial services go to:

www.nafep.com

ww.iracentral.com

The IRA account owner is considered a “disqualified person” and cannot provide a personal guarantee of a loan for the IRA. Therefore, when setting up an IRA or IRA-LLC (ICO), you cannot guarantee a loan to purchase property, nor could you open a margin account at a brokerage firm in which you personally guarantee to cover any margin calls. This could also apply in cases where the LLC is attempting to get a credit card from the bank, and the bank requires a personal guarantee on that card.

To learn more about self directed IRA or IRA custodial services go to:

www.nafep.com

www.iracentral.com