How to Avoid Self Directed IRA Abuse?

One of the best things about self-directed IRAs is also one of the worst, all the additional control that you get over your investments of your retirement account. The additional control allows you to choose investments that you think will perform better than most of the standard opportunities do, but with increased control comes a higher risk of breaking IRS rules and incurring a penalty. If you have a self-directed IRA account or you plan on getting on it is very important to take these steps to help avoid being penalized, otherwise you could lose a large portion of your retirement account.

1.    Choose your custodian with care. When using a self-directed IRA you need a custodian to handle all of your money and your deals for you. This custodian is usually a bank or financial provider, and you need to make sure you have one that knows the rules and regulations of SDIRAs and is set on following them.

2.    Ensure that you have a custodian that will handle everything for you. There are some IRA accounts that offer a checkbook feature that essentially lets you handle all of yoru own money yourself through an online checkbook. This is a very convenient feature, but it breaks IRS rules and can get you penalized if you aren’t careful. You are better off finding a company that will handle your money and your transactions for you to keep you safe from the IRS.

3.    Another important rule to follow is that all of your IRA-owned assets have to be held by a custodian. While it may be cheaper to keep those gold coins at your house, it’s against the rules, and the only way to avoid penalties is to pay your custodian to hold onto the assets for you. The same thing goes for lien documents, or just about anything else that you would have ownership of.

4.    Never invest in collectibles or insurance policies. Either option could seem like a great way to make fast profits, but they aren’t allowed. Making investments in either of these items is a fast way to get slapped with a penalty.

5.    Finally you have to take steps to show that you aren’t self-dealing. Essentially you have to make sure that you or your family members aren’t benefiting from your investments. No family members can be living in a property that you purchased, you can’t use rent collected from your rental unit to buy groceries one month, and you certainly can’t use your funds to loan money to one of your relatives.

The IRS has many different rules and regulations governing how you can use the money stored in a self-directed IRA. By surrounding yourself in professionals and learning many of the rules yourself you can avoid potential problems and keep your investments profitable.

How to Avoid Self Directed IRA Abuse?