Be Careful With Self-Directed IRA Investment Selection

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For many Americans, IRAs (individual retirement accounts) are popular and viable options for retirement savings. An IRA allows an individual to put away a certain amount of funds each year, without immediately being subject to tax. The funds accumulate over the years and grow tax deferred. The owner of an IRA pays taxes on the funds when taking distributions.

There, however, are a lot of rules promulgated to regulate maintenance and investment of IRAs.  If not properly managed, the IRA may lose its tax deferred status, and all funds in the IRA will immediately be subject to taxation, plus penalties.  Complying with all these rules can be challenging.  It is even more so for self-directed IRAs.  A self-directed IRA allows the owner of the IRA to select investments (as opposed to a traditional IRA, typically held by a bank, and mostly restricted to investing in the bank’s own financial products).  Many business owners like the idea of selecting their own investments for IRAs.  They might be particularly interested in investing the IRA in their own businesses.  However, these business owners should be careful in making investment decisions for self-directed IRAs.  There are a lot of rules regulating and prohibiting a self-directed IRA being invested in the owner’s own business.  We suggest you seek legal advice before making such an investment decision.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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