Investors have always had choices when it comes to investing IRA funds. Unfortunately many don’t know that they can further diversify their IRA investing strategies with the addition of non-publicly traded “Alternative Investments” such as real estate, trust deeds, promissory notes and investments in privately held companies. Alternative Investments are less liquid, may offer higher investment risk and, for the self-directed investor, require a higher level of due diligence since most financial brokers and advisers don’t specialize in this asset class.
Before You Self-Direct
All self-directed IRA investors should become familiar with the Prohibited Transaction Rules as described in Section 4975 of the Internal Revenue Code. For your convenience, here is a summary of those Rules.
- No sale, exchange or leasing of any property between the plan (IRA) and a Disqualified Person.
- Disqualified Persons include the IRA account owner, his or her spouse, any fiduciary to the plan, any ascending or descending lineage of the IRA account owner and any entity where the IRA account owner is a highly compensated employee or 50%+ owner.
- No lending of money or other extension of credit between the plan and a disqualified person.
- No furnishing of goods, services or facilities between a plan and a disqualified person.
- No transfer or use of any income or assets of the plan to a disqualified person.
- No act by a disqualified person whereby he or she deals with the income or assets of the plan for his own benefit.
- No receipt of any consideration by a disqualified person from any party dealing with the plan in connection with a transaction involving the income or assets of the plan.