A Closer Look: Self Directed IRA Rules You Should Know About

A self-directed individual retirement account (IRA) presents a lot of benefits to investors. You can do more than just diversify your assets. You can calculate your risks and avoid burdensome tax payments. 

However, because a self-directed IRA is so useful, there are also a lot of strings attached. If you don’t know what the self-directed IRA rules are, then you could end up paying unexpected fees.

That’s what we’re here to help you with. So keep on reading and we will take you through the top self-directed IRA rules that you need to know about!

Disqualified Individuals

If you have a self-directed IRA, you can’t buy an investment from or be involved with a disqualified person. As the account owner, you are considered a disqualified person. Your family members also count. 

This also includes businesses that a disqualified person owns at least half of. Your lawyer and accountant are also considered to be disqualified persons. The same is true for your IRA custodian.

Prohibited Transactions

You are not allowed to make an investment that directly benefits a family member. For example, you can’t invest in a company that your relative owns. 

Self-dealing transactions are also prohibited. 

Taxes

You might have a self-directed IRA that is tax-deferred. This means that you don’t owe taxes until you withdraw your funds when you are older. However, money that is borrowed in the account is taxable.

If you own a business with your IRA, you might owe UBIT tax. If you get income from a financed property, you could owe a UDFI tax. 

IRA Withdrawal Rules

You need to keep in mind that your self-directed IRA is a retirement account. There are penalties that you need to pay if you take your money out early.

In order to withdraw your money out without a penalty, you’ll need to be at least 59 years old. You will also need to start taking required minimum distributions once you reach age 72.

Contribution Limits

There are also contribution limits that you need to be aware of. In 2021, the most that you could put into your self-directed IRA is $6,000. You’re able to put in your previous year’s IRA total until the tax deadline.

Also, if you are at least fifty years old then you can add an extra $1,000, as a catch-up contribution. 

The Importance of Knowing About Self-Directed IRA Rules 

Hopefully, after reading the above article, you now have a better idea of the many self-directed IRA rules. As we can see, there is a lot to navigate when setting up and running a self-directed IRA. But when you run your IRA properly, you can end up making a lot of money and saving from taxes.

If you’re still confused, then consider talking with an accountant. 

Do you want to read other education and useful financial articles like this one? If you do, then make sure to check out the rest of our site today for even more!

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