Self-Directed IRA Rules
Understand the key rules and restrictions that govern Self-Directed IRAs (SDIRAs) to keep your tax-advantaged status intact.
Self-Directed IRAs allow a broader set of investments than traditional IRAs, but strict IRS rules apply. Follow these guidelines to avoid prohibited transactions and maintain tax advantages.
Custodian Requirement
An SDIRA must have a qualified custodian to oversee the account—administering transactions and ensuring IRS compliance. Choose a custodian experienced in self-directed investments.
Prohibited Transactions
Self-Dealing
Transactions that benefit you or other disqualified persons are prohibited.
Use of IRA Funds for Personal Benefit
Using IRA funds for personal expenses is not allowed.
Investing in Collectibles
Investments in collectibles (art, antiques, certain coins) are prohibited.
Disqualified Persons
Avoid SDIRA transactions with the following disqualified persons:
- The account holder and spouse
- Lineal descendants (children, grandchildren) and their spouses
- Fiduciaries and service providers to the SDIRA
Fair Market Valuation
Investments must be reported at fair market value, with accurate periodic valuations for IRS reporting.
Required Minimum Distributions (RMDs)
When you reach the required age, you must take annual RMDs—failure to do so can trigger penalties.
IRA Contribution Limits
SDIRA contribution limits mirror Traditional and Roth IRA limits. These change periodically—stay current with IRS guidance.
Tax Reporting
Transactions must be accurately reported each year, including contributions, distributions, and fair market valuations. Non-compliance can result in penalties.
Investment Options & Restrictions
SDIRAs support a broad range of assets. However, investments in life insurance contracts and S corporation stock may be restricted.
Real Estate Considerations
For SDIRA real estate, avoid personal use, transactions with disqualified persons, and using IRA funds for personal property improvements.
Prohibited Assets
- Life insurance contracts
- Investments in S-corporation stock
Distribution Rules
SDIRA distributions generally follow traditional IRA rules. Early withdrawals before age 59½ may incur penalties; qualified distributions can be tax-free depending on account type.
Unrelated Business Income Tax (UBIT)
Income from certain activities (like operating a business within the SDIRA) may trigger UBIT. Plan accordingly with professional guidance.
Stay Informed & Seek Advice
IRS rules evolve. Work with experienced custodians, tax advisors, and legal experts to stay compliant and maximize SDIRA benefits.
Need Help Navigating SDIRA Rules?
Our team can help you structure compliant strategies and avoid costly mistakes.