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Is Your Self-Directed IRA Looking For a Partner?

Published on May 21, 2015

self directed IRA Investments
Your self-directed retirement plan can include many and interesting kinds of alternative assets and there are few limits regarding what you can invest in. However, there are a few important rules to keep in mind.

Keep Track of Income and Expenses

First of all, all income and expenses related to the purchased assets flow through the IRA, since the account is a separate entity from you (you are not personally the investor, the account is).

Prohibited Transactions

Then there are the prohibited transactions and disqualified people who may not engage, directly or indirectly with the self-directed retirement plan (those include the account holder and the account holder’s spouse, antecedents or descendants and their spouses, and the account holder’s entities).

The Exception to the Rule

There is an exception to this: a self-directed IRA may partner with a disqualified person or entity according to percentage of ownership AND simultaneous funding of the asset. These are important distinctions.

If a partnership were to form, it would have to be a new transaction and all income and expenses must go in and out of the IRAs at the same time. For example, let’s say an account holder partnered 50/50 with her self-directed IRA to purchase real estate and a $100 water bill for that investment property was due monthly. In this case, both the account holder and the retirement account would pay the water company $50. It would be considered prohibited if the account holder and IRA alternated paying the bill in full every other month.

The percentages of ownership cannot be transferred or changed when partnered with a disqualified person, so care must be taken to fully research this option and make sure that it is property set up.

Have Questions?

The professionals at Next Generation Trust Services can explain this strategy to you and help you set up your self-directed retirement plan. Contact us to discuss this further at Info@NextGenerationTrust.com or (888) 857-8058. You can also read up on the basics of self-direction as a retirement wealth-building strategy in our helpful white paper.