May 2008 Self-Directed IRA-Prohibited Transactions

Invest your IRA in Profitable Real Estate

May 2008

Self-Directed IRA - Prohibited Transactions

What you always wanted to know, but were afraid to ask!

A prohibited transaction is one that involves a transaction between a disqualified person and an IRA (including Traditional, Roth, SIMPLE, SEP and Coverdell ESA plans). We will cover the two parts of the prohibition—the disqualified person and the transaction.

Disqualified Person: A disqualified person includes you, the investor, and members of your family, including your spouse, lineal ancestors (for example, your parents and grandparents) and lineal descendants (for example, your children, grandchildren, including adoptive children, and their spouses). If you own more than 50% of a corporation, partnership, trust or estate directly or indirectly (includes ownership interests over which you have control), the entity is considered a disqualified person. In addition, any officer, director or shareholder (with more than 10% ownership interest) or highly compensated employee of the entity, where you control 50% or more of that entity, would be considered a disqualified person. Non-lineal relatives—brothers, sisters, aunts and uncles—are not disqualified persons.

Transactions Disallowed: Your IRA cannot have any business with or make an investment involving the disqualified persons mentioned above. For example, you cannot make an investment in or loan money to the company where you are a 50% or more, owner. You may not provide benefits to any disqualified person. For example, the IRA may not pay excessive salaries to disqualified family members from within your LLC. You may not use the IRA assets for personal benefit, such as living in a house owned by the IRA. You cannot use IRA funds to invest in a property located next to another you own, for the purpose of increasing the value of the first property. You are not allowed to borrow money from your IRA, or pledge, or assign your IRA to another person or company. You cannot purchase life insurance with your IRA. You cannot invest in collectibles (art works, rugs, antiques, most metals, gems, stamps, most coins, and alcoholic beverages).

The Good, the Bad and the Penalties: If the IRS finds that your IRA has participated in a prohibited transaction, the IRA stops being an IRA on the first day of the year that the transaction occurred. This means that it is considered a distribution and you will have to pay taxes based on the fair market value of the account. If someone other than you, the owner, caused the prohibited transaction, additional excise taxes may also be imposed.

If you think a transaction may be a prohibited one, don’t do it. Check with your legal or tax advisor if you need a specific transaction reviewed. For questions regarding IRA investments in real estate, visit www.wealthyIRA.com, and order “Is Your IRA in Real Estate? It Should Be” the manual & CD program and sign-up for Platinum Service.

Platinum Service: Platinum Service provides answers to specific questions about investing IRA or other self-directed retirement accounts in real estate. As part of the Platinum Service, members are provided with all the necessary forms, personal assistance, and advice needed to complete their transactions. Go to: www.wealthyIRA.com to learn how to speak to a Platinum Service retirement specialists today.

Latest Blog Posts

October 9, 2009

Foreclosures are Up, but So are Investments! Investment strategies have shifted and more and more people are focused on diversification than ever. With only a small amount of IRAs and 401(k)s rebounding a bit this year, many people are still struggling to see the light at the end of the tunnel. Except for the few who see the need to retire with a diverse portfolio of investment vehicles. Prices for Real Estate are the cheapest they have been since the 1970s, and for the perceptive investors, many are using self-directed IRAs to invest in the deepest discounts in Real Estate to help balance out their stock-heavy retirement plans. This plan has several positive points of interest. For one, these investors are not subject to the serious losses that the stock market can bring in a very short time. In addition, Real Estate has and will always be needed as long as people need a place to call home. Long-term investing in Real Estate provides a steady stream of rental income in these tough economic times. Along with that, many properties are expected to double in value over the next 5 to 10 years. Try getting that return on investment from a stock or a bond. Using a non-recourse loan to purchase Real Estate with your IRA or 401(k) is a worthwhile way to make sure you have a diverse investment strategy as well as a new income source and a strong long-term investment for the future. For more information, visit www.WealthyIRA.com to learn how you can invest your IRA in profitable Real Estate.

September 9, 2009

The Next Big Revenue Boom: IRA Real Estate “People who see jobs evaporating in other companies and other industries tend to ratchet back their own spending, economists say—an understandable response, but one that could drive down the local economy even further,” according to previous reporting by Seattle Times. “Not only do consumers feel overall economic conditions have grown more dire," as stated earlier this year by Lynn Franco,

August 11, 2009

Banking News: As part the much-debated Troubled Asset Recovery Plan (TARP), US Treasury Secretary Timothy Geithner’s Financial Stability Plan provides $1.5 trillion in bank bail out funds. "By providing the financing the private markets cannot now provide, this will help start a process of providing a market for the real estate related assets that are at the center of this crisis," Geithner said earlier this year.

July 10, 2009

Investment NEWSAccording to a previous article in the New York Times, of the 45 million IRA-invested households, “… an increasing number are switching to real estate, hoping for more lucrative returns.” The article goes on to report that “Industry experts estimate that 2 percent of IRA money is invested in real estate - through ‘self-directed accounts’ held by a custodian and managed by the account holder - twice as many as two years ago.”

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