What are the Self Directed IRA Rules


SORRY, YOUR IRA is Forfeit!

ira clip board


Did you know that if you use your Self Directed IRA incorrectly that you could face steep penalties up to have your entire IRA become forfeit and causing you to have to pay taxes on all of it?


This week at MAREI’s Member’s Only Master Mind we are going to be talking about Self Directed IRAs and how they can be used to buy and rehab houses and how the whole prohibited transaction fits into the scheme of things.  Because we don’t want to spend the entire meeting talking about just what is a Self Directed IRA I wanted to offer up a bit of discussion and some links to get acquainted with  the topic.


A Self Directed IRA is an IRA following all the rules of IRA’s anywhere, that is offered by a company that will allow you to direct where you money goes and how it is invested.  Now companies like Fidelity will tell you they have “self directed” IRA’ and they do, but you can only “self direct” into things they offer, like stocks, bonds, money funds, etc.  A truly self directed IRA will allow you to invest in things like Houses, Apartments, Mortgage Notes, Options, Stocks, Bonds and Money Funds.


Once upon a time there were only a few companies offering this service, the two big ones being Equity Trust and Entrust (of the photo above), but through some shake up that have yet to quite figure out, a bunch of Franchisees from Entrust, went out on their own and started their own companies across the US and there are a bunch to choose from.  So do your homework and choose wisely.


To give you an example . . . I rolled over my 401K when I left my corporate job from Fidelity to Equity Trust Company, then using funds from the IRA I purchased a house through a short sale and leased it back to the former owner.  My IRA collected the rent, my IRA paid for repairs and paid taxes.  My IRA made all the profits.


That same IRA also purchased a few house that we then resold for a profit, all the profit going back to the IRA.


The next thing you really need to know about a Directed IRA is that it cannot do business with or provide benefit to disqualified persons.  So who are disqualified person would be YOU, your SPOUSE, Your CHILD, Your GRANDCHILD, Your PARENT or GRANDPARENT.  For some reason brother’s and sisters are not disqualified, but they also frown on doing business with people you are closely associated with like employees and best friends because you could be somehow gaining some sort of benefit from the transaction.


So let’s talk examples.


If my IRA was to purchase a house, I could not live in the house because I would be getting personal gain and my Mother could not rent it from me because she is a disqualified person and would be getting personal gain from the transaction in a free house.


If my IRA was to purchase a house and renovate the house and then market it for sale, I could not list it as a Realtor and earn a commission from the sale.  My son could not list either as he would be getting personal gain in the way of commission and he is a prohibited person.


At the meeting on Wednesday we are going to be talking about these topics more in depth and looking at the hard to understand topic of rehabbing the house and personal gain.  So when your IRA purchases a house to renovate, there are things you might want to know if you can or cannot do them in regards to the prohibited transactions and we are going to be discussing them on Wednesday.


This meeting is Wednesday Night April 16th from 6pm to 8pm in the Dining Room at the HyVee at 95th and Antioch.  We have $150 in food ordered, Sandwiches, Fruit, Cookies, Etc.  It is first come first served on the food and once it’s gone, you are on your own if you want more . . . We ask that you be a member of MAREI or a first time guest.  So if you have never attended you can come and check out your first meeting, if you have been to a meeting, then to attend you need to join, and we will have membership forms at the meeting.  Our plan is to grab food and network from 6pm to 6:30.  At 6:30 we want to open the discussion on Self Directed IRAs and field questions on the topic and run till about 8pm.  This is a first meeting of it’s kind.


We also ask that you participate in the discussion, sharing your own knowledge of real estate and self directed IRA’s or asking questions.  You can get all the details on our calendar of events 


If you Google Self Directed IRA you will find multiple sites that discuss everything you ever wanted to know and if you Google Disqualified Persons