PUTTING YOUR “SELF” IN THE SELF-DIRECTED IRA KAAREN HALL
that your investment does
not violate any of the
prohibited transaction rules
(IRC 4975).
With a self-directed IRA
you
do
all
the
due
diligence and make all the
investment decisions. Your
self-directed IRA Compa-
ny does not provide legal
or financial advice, so you
IRA, certain people are “prohibited” and cannot
must get this advice from a lawyer or tax expert
benefit. Prohibited (or disallowed) people include
where that advice is needed.
lineal ascendants and descendants, plus any
fiduciary or someone providing services to the
With a typical IRA invested in the stock market,
plan. This means that your IRA could buy a rental
you are working with a licensed advisor who has
property, but your son (lineal descendant) could
familiarized themself with your financial status
never have any personal use of the property.
and is legally allowed to hold themself out as
Similarly, your IRA could not buy or sell an asset
someone who can offer financial advice. With a
to/from a disallowed person.
self-directed IRA, YOU fill that advisory role for
yourself.
Now you are held to a degree of
To take it a step further, one of these disallowed
accountability to make sure you are making a
people could not provide “goods, services or
sound investment.
facilities to the plan”. So say your IRA is investing
in real estate. Your son is a realtor. Your son is
There is case after case where IRA holders lost
disallowed to your IRA, so he could not act as a
self-directed IRA funds to fraud and tried to
buyer’s agent, listing agent, etc. even if his
come after the account’s custodian for remedy
services are provided at no cost, because he is
without success. In Mandelbaum v. Fiserv, the
disallowed to the IRA.
You just don’t have that
kind of restriction with personal cash.
It is equally important to understand that, with a
self-directed IRA, you are completely responsible
to investigate the possible risk and to make sure
With a self-directed IRA
you do all the due diligence
and make all
the investment decisions