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6 Essential Self-Directed IRA Rules

Save your nest eggKnowledge is power, especially when it comes to knowing the rules that govern self-directed IRAs. When you understand and follow the IRS regulations, you can avoid penalties and maximize your retirement savings.

Here are six self-directed IRA rules that deserve your attention:

1. Prohibited Investments

While self-directed IRAs offer the most investment freedom, allowing for real estate, gold, and other alternative investments, there are a few asset classes that are not allowed:

- Insurance
- S Corporations
- Common Collective Investments
- Collectibles (except for certain coins)

 

2. Disqualified Persons 

Some people are considered disqualified for the purposes of making IRA investments and transactions. Examples include your spouse, children, and grandchildren. Any dealings with them in your IRA are prohibited.  Make sure you understand who is disqualified before making investment transactions.

3. The Self-Dealing Rule

Because retirement accounts are tax deferred, the IRS prohibits any investments that deliver immediate gain. For example, you cannot live in a real estate property owned by your self-directed IRA.

4. Contribution Limits

Every year, the IRS sets limits to how much you can contribute. Each self-directed retirement account­­ — Traditional, Roth, Simple, or SEP IRA — has set limits provided by IRS on a yearly basis. Check the contribution allowance for your account type to make sure you are getting every penny of the tax benefits associated with your IRA. 

5. Early Withdrawal Penalty

Most retirement accounts require you to wait until retirement age (i.e., 59 ½) to use your savings without a penalty. This means that early withdrawals prior to this age will not only be taxed but penalized as well.  The IRS has defined a few exceptions to this rule in certain cases.

6. Required Minimum Distributions for Some IRAs

Once you reach age 70 ½, you may be penalized if you fail to take the minimum required distribution (RMD) from your self-directed Traditional, SEP, or Simple IRA. If you are approaching this age, contact us to discuss your RMD options.

Keep these six self-directed IRA rules in mind and you are one step closer to successful retirement saving.

If you would like to learn more about self-directed IRA rules, or have questions about opening an account, please set up an appointment with an Entrust Group IRA specialists or call toll-free at 800-392-9653.

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