Collectibles such as works of art, carpets, antiques, metals, gemstones, stamps, coins, and alcoholic beverages cannot be kept in these accounts. The IRS doesn’t have a list of “approved investments” for self-directed IRAs, but what the IRS does have is a list of prohibited investment types, transactions, and situations you don’t want your IRA to participate in. With IRAs, you can invest in stocks, bonds, annuities, mutual funds, exchange-traded funds, and more. Qualified plans may also include other types of securities, including annuities, company stocks, and mutual funds.
All of this comes with the tax benefits IRAs are known for. If you place your IRA with an institution that is not authorized as described above, you run the risk that your IRA will be voided and that you may be subject to taxes and penalties. An IRA investor may be able to use real estate purchased in an IRA if the transaction is carefully structured. The ability to do this often leads to confusion with IRC 4975, which prohibits an IRA from investing in a company that is 50% or more owned by the IRA owner and close people.
Rollins’ consulting firm (RFC) entered into a financial advisory agreement with its accounting firm (IRA). The decision in the Swanson case supports the view that the mere creation of a company by the IRA alone or as appropriate between an IRA and independent parties (or, for that matter, related parties) is not a prohibited transaction. This means that the IRA owner must find an independent trustee to provide such a service (e.g. to retain ownership of the properties, collect rent). The IRA of B) invests in a company to get that company to enter into a transaction with a disqualified person (the S Corporation) on a pre-agreed basis, which is then tantamount to a prohibited transaction.
The reader is advised to contact their own professional advisor when making transactions involving your IRA. You can have a self-governing IRA with a brokerage firm or a specialized, self-governing IRA custodian such as the members of the RITA Association. Benefits in the form of higher contribution limits and more flexibility in transferring retirement savings between different types of retirement plans have increased over time as the government began to recognize the importance of IRAs as part of an individual’s general retirement plan. First, as previously defined, any transaction between an IRA and a disqualified person (owner, owner’s spouse, straight ascending and descending lines, and straight descent spouses) is in most cases a prohibited transaction.
While it is not a prohibited transaction for the IRA to buy shares in a Sub-S corporation, it is prohibited for the S Corporation. You’re well advised to contact knowledgeable lawyers who can help you review a proposed IRA investment involving a startup to make sure you’re not violating the prohibited transaction rules. First there’s your IRA financing the investment, then there’s you, the IRA owner, and by definition a disqualified person.
