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Tax Blog

Limitations on Investing in a Self-Directed IRA with Disqualified Persons

Unlike a traditional IRA which is generally overseen by a brokerage house and is limited to investments in stocks, mutual funds, and the like, a self-directed IRA provides broader discretion to the account holder to invest in things like real estate and businesses. In a self-directed IRA, the account owner holds the power to make their own investment choices. A self-directed IRA is an IRA fund that permits broad discretion to invest the IRA-held accounts into any legally authorized investments. Let’s take a moment to consider the “disqualified persons” limitation that the IRS has placed on this investment vehicle.

The Internal Revenue Code restricts investments with “disqualified persons.” This includes investing with yourself and your family members. For example, this means you could not invest your self-directed IRA funds into your own real estate, and you could not invest them into your child’s or spouse’s business. Furthermore, if IRA property requires any improvements, the IRA funds cannot be used to pay a disqualified person to make those improvements.

The reasoning behind this restriction is that IRA investments should be made to benefit the IRA as an entity itself, and they should not be used to benefit the account holder personally or the account holder’s family. The professionals at The Center for Financial, Legal, and Tax Planning, Inc. are more than knowledgeable with regards to Self-Directed IRA investments. Please contact us at (618) 997-3436 for more information.


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