subject: How to Put Oil and Gas in IRA Plans [print this page] How to Put Oil and Gas in IRA Plans How to Put Oil and Gas in IRA Plans
Oil and gas in IRA plans often come as a surprise when investors find out that they could invest in oil and drilling projects through a self directed IRA. It really is a little known fact that investors have been doing this for years.
Why Invest in Oil and Gas for Retirement Plans?
With all of the "green" initiatives leading the way these days, there is a lot of talk about whether oil and gas is a sound investment. Those types of questions will be best answered through research on your part or the help of a financial advisor.
When you have a self directed IRA, your trustee or custodian must not have a vested interested in the retirement plan. They are only there to help ensure all rules are followed and all transactions pass from you through them into the retirement account. They will not offer financial advice. You must know and feel comfortable with the investments that you make. Nevertheless, this is also the main advantage to a self directed IRA.
With that being said, it's no huge secret that most industrial nations have been fueled by the need for oil and gas for a long time. Furthermore, the oil and gas industry doesn't rely solely on transportation needs for its demand. Without petroleum, there would be no containers, toys, nail polish, tires, pillows, pesticides, and even food additives. The list could go on, but you probably get the picture.
It's All About Supply and Demand
The price of petroleum is one of the baselines that analysts use to gauge the economy. Production levels are declining. The facts speak for themselves. The United States is the third largest oil producer, but they come in first for the consumption of oil. We produce 8% of the oil, while we consume a whopping 25%. This shows us that the demand is present and supply is needed. There are plenty of American companies looking for investors in drilling projects.
UBIT and Oil and Gas
If you decide to invest in oil and gas drilling projects, be aware that you may have to pay unrelated business income tax (UBIT), depending on whether it is a working interest or a royalty interest. To answer any questions about taxation, you should seek financial advice. You may also view the information in the IRS Publication 598.
Finding a Truly Self Directed IRA
A truly self directed IRA should offer investment options in oil and gas. It's important that you ask a lot of questions before you decide on a custodian or trust. An IRA company that restricts you from investments other than the ones prohibited by the IRS are not truly self directed.
It's important to keep your investment options open. There could come a time when you'd like to invest in something else. Sometimes time is of the essence. It won't be a timely process if you have to locate a trust company that will handle your transaction. Your SDIRA custodian should be able to provide you with a list of what they offer, including oil and gas in an IRA.
