The Complete Guide to Self-Directed IRAs: Top 10 FAQs Answered
Directed IRA Podcast
Understand the Prohibited Transaction Rules for Self-Directed IRAs
Self-directed IRAs allow investing in what you know and believe in, not limited to publicly traded stocks. The key rule to grasp is the Prohibited Transaction Rule, which focuses on transactions with disqualified persons, such as yourself, parents, kids, and their spouses. The rule does not limit what your IRA can buy but prohibits transactions with disqualified individuals. Violating this rule can lead to severe penalties, where the entire account becomes disqualified. Other prohibited transactions include self-dealing and extensions of credit. While the penalties for breaking the rules are strict, the benefits of tax-free growth in IRAs are substantial. IRAs and 401ks are meant for investment growth, with benefits realized upon retirement age, not for personal gain or immediate use.
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