Individual retirement arrangement or IRA\u2019s are very common and well-known. Normally when someone owns an IRA they invest in stocks, bonds, and mutual funds, but did you know that there is alternative arrangement, called a self-directed IRA?<\/p>\n
A self-directed IRA allows an individual to invest in a wide array of assets, including real estate, private equity, and to make private loans. There are prohibited transactions though, such as living in a property owned by the self-directed IRA, so you must be careful to comply with the rules.<\/p>\n
Why Use a Self-Directed IRA? <\/em>Because of the ability to invest in non-traditional assets, you have the ability to earn a higher rate of return and to diversify your investments from traditional stock and bond portfolios.<\/p>\n Traps to Be Aware of:<\/em> The easiest mistake to make is to not be aware of the tax traps of investing in private equity or real estate. For example, if you invest in a restaurant that is formed as an LLC, then the income from the LLC will be \u201cpassed-through\u201d to the IRA. Although this is allowed, the income is considered \u201cunrelated business taxable income\u201d and would trigger tax on the income. A way of getting around this is to invest in a company organized as a c-corporation and receive dividend income.<\/p>\n Other Traps:<\/em> These traps are called prohibited transactions and if you engage in them then the IRS will tax all of your IRA assets as a distribution as ordinary income plus penalties, when applicable. A sample of prohibited transactions includes borrowing money from your IRA, selling property to it, using it as security for a loan, and many other self-dealing transactions.<\/p>\n Despite the traps that need to be avoided, a self-directed IRA may be appropriate for your portfolio. As with any investments you need to perform your due diligence to choose the right investments, IRA custodian, and advisors.<\/p>\n","protected":false},"excerpt":{"rendered":" Individual retirement arrangement or IRA\u2019s are very common and well-known. Normally when someone owns an IRA they invest in stocks, bonds, and mutual funds, but did you know that there is alternative arrangement, called a self-directed IRA? A self-directed IRA allows an individual to invest in a wide array of assets, including real estate, private […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[16],"tags":[38,48],"class_list":{"0":"post-55","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-retirement-2","7":"tag-ira","8":"tag-retirement","9":"entry"},"_links":{"self":[{"href":"https:\/\/belbolcpa.com\/blog\/wp-json\/wp\/v2\/posts\/55","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/belbolcpa.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/belbolcpa.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/belbolcpa.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/belbolcpa.com\/blog\/wp-json\/wp\/v2\/comments?post=55"}],"version-history":[{"count":0,"href":"https:\/\/belbolcpa.com\/blog\/wp-json\/wp\/v2\/posts\/55\/revisions"}],"wp:attachment":[{"href":"https:\/\/belbolcpa.com\/blog\/wp-json\/wp\/v2\/media?parent=55"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/belbolcpa.com\/blog\/wp-json\/wp\/v2\/categories?post=55"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/belbolcpa.com\/blog\/wp-json\/wp\/v2\/tags?post=55"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}