Self-Directed IRA Investors: Make Sure You Don’t Conduct Prohibited Transactions

Published on May 12, 2014

self directed IRAsAlthough self-directed retirement plans allow for many diverse types of investments, there are several prohibited transactions as proscribed by the IRS that investors must adhere to . . . or risk paying penalties or having their accounts lose their tax-advantaged status.

A common error account holders make is to liquidate an investment that is in their self-directed IRA directly to them or to another IRA. This is not allowed because all income and expenses related to the investment must flow through the self-directed retirement account that made the initial investment. Therefore, any returns from the investment must go back to the IRA that invested in them.
Three common types of prohibited transactions are when:

It’s important to note here as well that any rollover from the liquidated assets into another IRA can be a taxable event, so investors are strongly advised to discuss their plans with their financial advisors or tax planners. The IRS will want to know where those funds came from. A distribution becomes a taxable event when the funds or asset is not rolled over to another tax-advantaged account within 60 days.

If you ever have any doubt about a transaction, or you and your financial planner need clarification about how to handle liquidated assets, contact Next Generation Trust Services at Info@NextGenerationTrust.com or (888) 857-8058. Our experienced professionals can answer your questions about any aspect of self-directed retirement plans and the alternative assets allowed in them.