Use Self-directed Iras With Caution

Utilizing self-directed IRAs to fund real estate investment deals is a great way to leverage other peoples money (OPM) to execute deals

. Your private lender receives an above average rate of return and you can fund more investment property acquisitions; a great win-win all the way around.

I am not here to bash self-directed IRAs. They are a fantastic tool when used correctly. I utilize private lender self-directed IRAs routinely plus execute deals of my own in a self-directed IRA. However, I am here to voice a resounding word of caution. There are a lot of people out in the real estate world talking about the benefits of utilizing self-directed IRAs for private funding; that is great, but make sure you are receiving your information from reputable sources. Too many people are not providing the full story either because they dont know or they are just being reckless. I am not sure which. This is not childs play people!

The penalties for self-dealing or executing a prohibited transaction can be quite severe, including disqualification of the IRA status, early distribution penalties and punitive damages up to 100% taxation. Ouch! If you dont know what the rules are concerning self-dealing, what a prohibited transaction is, or who is a disqualified person, you need to educate yourself. A great place to start understanding prohibited transactions is IRS publication 590. Here is an example.

The IRS defines a prohibited transaction as follows:

"Generally a prohibited transaction is any improper use of your IRA account or annuity by you, your beneficiary or any disqualified person. Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of lineal descendant)."--Source IRS Publication 590.

Another great place to start learning about what is legal and what is not, is reading in the education sections of some of the major custodians for self-directed IRAs. Here is a short list of some of the major names that come to mind:

Equity Trust Company - www.trustetc.com

Guidant Financial www.guidantfinancial.com

Pensco Trust Company www.penscotrust.com

The Entrust Group www.theentrustgroup.com

My personal experience has been with The Equity Trust Company. However, there are multiple companies available that provide custodial services. The key factor I want to get across is that you need to educate yourself from reputable sources. Just because you hear someone talking about self-directed IRAs or read a blog post about self-directed IRAs (including this one) take the time to verify what is being said and the source it is coming from. You will be happy you did in the long run.

Thank you for reading the article and feel free to provide us some feedback. We are working to get better every day. Let us know what you would like to have addressed in the future and we will provide a post to address it. Have a great day.

by: Jay Redding

POST COMMENT

New Article - Penis Male Enlargement - A Gift For Yourself Details - Find Your Russian Wife By Yourself - Briefly About Ways Blogging - Once Used To Share, Now Used To Get Yourself New Article - How To Make Your Penis Bigger And Shoot Your Sex Life And Self-Confidence Through The Roof! Proven - Beginner'S Guide To Penis Growth Exercises Highly Rated - Finding Your Ideal Mate(5) - Know Yourself Credit Restoration Services: Is It Better To Hire Them Or Do I Fix My Credit By Myself Camping Supplies You Shouldn't Forget Attention Entrepreneurs: Self-learning Necessary How To Motivate Yourself And Unleash Your Potential Updated - Do It Yourself Penis Male Enlargement- Easy And Natural Ways To Grow Your Penis Bigger Swiss Ball Ab Exercises: A Guide For Beginners Ben Way Self made millionaire