Self-Directed IRA Rules & Regulations

Opening a Self-Directed IRA (SDIRA) allows you to have complete control over your retirement account. However, the flip side of that freedom is that you are solely responsible for whatever occurs within your IRA. Knowing and abiding by the laws that govern IRAs is your responsibility.

Prohibited Transactions

IRS Publication 590 defines a prohibited transaction as any improper use of your IRA by you, your beneficiary, or any disqualified person.

The 4 main categories of prohibited transactions

Sale, exchange or leasing of a property between an IRA and a disqualified person.

Example: Renting a property owned by your IRA to your child.
Extension of credit or cash loan between an IRA and a disqualified person.

Example: Using IRA funds to invest in your spouse’s bakery.
Furnishing goods, services, or facilities between an IRA and a disqualified person.

Example: Personally painting the walls of a condo your IRA owns or hiring your son-in-law to do so.
Transfer of IRA income or assets to, or use by or for the benefit of, a disqualified person.

Example: Deposit your IRA-owned rental property income to your personal bank account.

If a transaction appears to benefit you beyond the scope of your retirement account, you may want to consult your financial advisor. Violating prohibited transaction rules can jeopardize your IRA’s tax-free or tax-deferred status. Penalties may also apply.

Check out our Prohibited Transaction Flowchart for help assessing potential transactions.

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Disclaimer: This chart should not be considered financial advice. Before you make any transaction, be sure to consult with a legal or financial professional

Disqualified Persons

Transacting with a disqualified person can cost your IRA its tax-advantaged status and incur penalties.

Disqualified persons include:

You
Your spouse
Your lineal descendants, ascendants, and their spouses
A beneficiary of the IRA
Investment advisers and managers
Any corporation, partnership (or estate that you have at least a 50% stake in)
Your trustee, custodian (or anyone providing services to the IRA)

Investment Restrictions

A Self-Directed IRA’s investment options are practically endless, but they’re not without restriction. There are three types of investments that you are not allowed to invest in with your Self-Directed IRA.

The three asset classes not permitted in your IRA are

Life insurance

Collectibles

S Corporations

The IRS defines collectibles such as

Artworks

Rugs

Antiques

Metals ¹

Gems

Stamps

Coins ²

Alcoholic
Beverages

Other ³

¹ Except for gold, silver, palladium, and platinum bullion of a certain purity.
² Except for gold and silver coins minted by the US Treasury Department.
³ Certain other tangible personal property.

If you invest in one of these asset classes, the IRA funds in your self-directed IRA will be considered distributed to you as of January 1 of the year you made the investment. You may also be subject to a 10% early distribution penalty if you are under the age of 59 ½.

Now that we’ve established what you can’t invest in, here’s a list of 90 things you can invest in with a Self-Directed IRA. Any investment opportunity that is legally allowed can be held in your SDIRA. If the law allows the investment, your SDIRA can hold it.

Want a convenient way to review these rules later?

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Prohibited Transactions

The 4 main categories of prohibited transactions

Sale, exchange or leasing of a property between an IRA and a disqualified person.

Extension of credit or cash loan between an IRA and a disqualified person.

Furnishing goods, services, or facilities between an IRA and a disqualified person.

Transfer of IRA income or assets to, or use by or for the benefit of, a disqualified person.

Disqualified Persons