prohibited transaction Archives - Innovative Advisory Group

5 Common IRA Prohibited Transactions That Could Tax You

Self Directed IRA / By Kirk Chisholm / 04/04/2022

If you are like most investors, you probably have not heard of prohibited transactions. Prohibited transactions specifically apply to retirement plans such as self-directed IRAs or 401ks. It is estimated that less than 80% of investors fully understand the flexibility that a self-directed IRA offers, so most IRA account holders won’t have reason to come into contact with this rule. If you do use your retirement plan to invest in alternative investments, then please keep reading.

What is a prohibited transaction?

A prohibited transaction can be described as an improper use of your IRA account assets by a disqualified person. The term prohibited transaction in this case applies to retirement plans such as a self-directed IRA, or 401(k) The IRS defines a prohibited transaction as:

10 self directed IRA tips to help real estate investors maximize profits

“Self Directed IRAs are one of the best laws the US government has ever passed”

Can I invest in real estate with my Self-Directed IRA?

“Self Directed IRAs are one of the best laws the US government has ever passed”, an investor once told me. It is hard to argue that point. In 1974, congress passed the Employee Retirement Income Security Act, often referred to as ERISA, enabling US taxpayers to save money for their retirement in a tax deferred manner. The best part of this program (outside of the tax deferred nature of it) is that they allow you to self-direct your savings.

ERISA established the individual retirement account (IRA) as a staple in many investors toolbox for retirement savings. The IRA allows investors to invest in virtually any investment. While most investors think that they are restricted to stocks, bonds, and mutual funds, the choices are much more interesting. Some ideas that I have seen include: real estate, tax liens, private mortgages, dressage horses, farmland, sports franchises, timberland, physical gold and silver, raw land, private company stock, oil & gas LPs, franchises, and more. With all of these choices and more, you should have already come up with some ideas that could make for interesting investments.

Real estate and real estate related investments is definitely the most common asset type when it comes to self directed IRAs. Whether you are a professional investor or a novice, you probably have at least a basic understanding of how real estate works. Here are 10 self directed IRA tips for investors who want to invest in real estate with the IRA.

Worried About Fraud with your Self Directed IRA? SEC says, Ask a Financial Advisor

Self Directed IRA / By Kirk Chisholm / 01/14/2015

In their September 2011 Investor Alert, Self Directed IRAs and the risk of fraud , the SEC outlined typical fraud risks when using a self directed IRA.

If you are worried about the risks of fraud when using a self directed IRA, then do as the SEC recommends in their Fraud Alert, “Ask a professional”.

The top three fraud risks with self directed IRAs that they focus on are:

Misrepresentations regarding custodial responsibilities
Exploitation of tax-deferred account characteristics
Lack of information for alternative investments

While these may be common fraud risks that the SEC sees with their enforcement efforts, the risks attributable to alternative investments inside self directed IRAs expand beyond just fraud risks. There are other risks which are important to consider when using a self directed IRA. Investors should also consider:

8 Common Mistakes Using a Self Directed IRA

Self Directed IRA / By Kirk Chisholm / 09/18/2014

I decided to write this post because over the years while working with clients, I have come across the same mistakes over and over again. Some of these mistakes are from a misinterpretation of the rules, some are through a lack of knowledge in certain areas, and the most common one being unaware of the capability to invest in alternative investments inside a self directed IRA. While most of the rules are easy to find, unfortunately they don’t all appear in one place. I wrote this post to help address these common mistakes using a self directed IRA.

What is a self directed IRA?

I want to define “self directed IRA” for people who are unaware of the definition. A self directed IRA is an account with preferential tax treatment, which is capable of investing in alternative investments. These alternative investments could be assets such as real estate, tax liens, private mortgages, gold & silver, horses, livestock, farmland, medical equipment, and more. While a self directed IRA can invest in traditional assets such as stock, bonds and mutual funds, it is typically used to invest in alternative investments. For further information about what a self directed IRA is, please read the following post about self-directed retirement accounts

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