IRA Prohibitive Transactions

What You Can’t Do With An IRA

When it comes to Individual Retirement Accounts, investors should know about transactions associated with them which are considered “prohibitive”. There really are no regulations about what constitutes allowable assets in such savings plans, but there are some regarding what are not allowable.

If you already have a Self-Directed IRA, you probably are aware of the limitations, but for those considering a change from traditional retirement investing, there are some parameters to consider. Several avenues of assets exist when it come to non-traditional investing, but some cannot be used in conjunction with traditional IRAs, and some cannot be used with even Self-Directed IRAs, unless through a Limited Liability Company.

No Used-Collections
When it comes to general retirement investing-regardless of the vehicle used-collections will not usually be legally permitted as an asset by the Internal Revenue Service. This includes, but may not be limited to, home furnishings such as antiques, artwork or rugs. It also prohibits funds to be invested in hobbyist sets such as coins or stamps, or even valued wine vintages and other beverage collections.

Can't Deal With Yourself
There also must be separation between you, as the investor, and the actual assets. For example, if you or your son or daughter controls a company, you can’t invest in it through your IRA because it’s considered dealing with yourself, and that’s a “prohibitive transaction”. Unless your son or daughter would be merely co-investors as well, it’s probably going to be off-limits, with penalties applicable.

No Real Estate Ownership Without LLC
Traditional IRA’s, or Roll Over IRAs, usually consist of assets invested in Mutual Funds or bank investments. Normally, if an investor wishes to invest in longer term projects such as partnerships, land, or real estate, the only option is to do so through a Limited Liability Company within their Self-Directed IRA. Very simply put, this is a legitimate and non-taxable business exchange of shares within an account. It’s done because owning real estate directly through a retirement account is not permitted, but it is with a Limited Liability Company.

LLC Advantages
The LLC allows revenue made through real estate sales and other aspects of ownership (such as tax liens, mortgages and promissory notes) to be deferred and exempt from certain investment penalties. Many other advantages also exist with this arrangement: Should an investor purchase additional property through their Limited Liability Company, there is then control without custodial conditions, and transactions such as down payments and paying off balances can be utilized with LLC funds. (This cannot be done with funds from traditional IRA’s.) Another advantage is that it offers investment in real estate opportunities unlike traditional IRAs by allowing the Limited Liability Company holder to control all transactions and costs. This equates to much lower custodial fees than with traditional IRAs. Plus, there are “safety nets” involving real estate ventures that are not seen with traditional Individual Retirement Accounts, but similar to such investing outside of such accounts.

Income Limitations
If you are currently considering retirement investment options, remember that Roth IRA processing does not allow contributions by individuals earning $110,000 or higher, and/or married couples making $160,000 or higher. Also, if you are currently self employed or do not work for a company that matches 401K contributions, there are distinct advantages to Self-Directed IRAs which allow you to manage the location, time, amount and place of your investment dollars. You also will have the opportunity to realize greater rewards while understanding risk factors.

Self Directed IRA Assistance
Implementing and maintaining a Self-Directed IRA does require professional assistance. Most companies that provide such offerings also offer support in the form of their own Tax Attorneys, Financial Consultants, and Real Estate Planners. They will discuss every aspect of your long term goals and risk level comfort in order to custom-plan a strategy. An amount of traditional and non-traditional investments will be agreed upon, and all of the research into opportunities will be made available to you. After you have reached your decisions, advisors will again guide you through all of the necessary steps to create a workable investment plan, and will continue to advise you of the newest litigation and tax laws.

Most investors in markets offered outside of traditional IRA investing have found that it offers stability when compared to the stock market, especially with the real estate boom in many domestic and international areas. Experts in the field of Self-Directed IRAs can provide in-depth information regarding real estate procedures and laws, what is taxed and what is untaxed, and the best vehicles for your particular needs and desires. They will also be glad to assist in providing information regarding maintenance, allowing you to enjoy the benefits of ownership without needing to handle the daily problems.