The tax code prohibits only three categories of investments: life insurance contracts, collectibles, or stocks in an S-corporation. Collectibles include artwork, rugs, antiques, gems, stamps, most coins, and alcoholic beverages such as wine. Certain precious metals and coins meeting specific purity requirements are an exception to the collectibles rule, which is what makes gold and silver popular self-directed investments.

Beyond those categories, the restrictions aren’t about what you buy. They are about who you transact with and how the investment is used. That’s where prohibited transaction rules come in.

A prohibited transaction is any improper use of your IRA by you or another disqualified parties. The core principle: your IRA exists for your retirement, not your present benefit. Any transaction that benefits you or a disqualified party today, rather than the account, creates a prohibited transaction.

Common examples include selling property you already own to your IRA, buying property from a family member with IRA funds, personally using an asset your IRA owns, or paying an IRA expense out of your own pocket. If a prohibited transaction occurs, the IRS treats the entire account as if it were distributed on January 1st of that year, making the full balance taxable, with an additional 10% penalty if you are under 59½. This is the area where structure and guidance matter most. When in doubt, call before you act.

Disqualified persons include you (the account owner), your spouse, your ancestors (parents, grandparents), your lineal descendants (children, grandchildren) and their spouses, any fiduciary to the account, and any entity such as a corporation, partnership, or LLC in which disqualified persons hold a controlling interest.

Notably, siblings, aunts and uncles, cousins, and friends are not disqualified persons under the code. Even so, transactions that skirt the edges of these rules draw scrutiny, and structure matters. Review any transaction involving people close to you before moving forward.

It depends on what you’re investing in and how quickly you need to move. For a standard custodial self-directed IRA, where the custodian holds the account and executes investments when you submit paperwork, works well for single, non-time-sensitive, passive investments: buying into a fund, a note, or a syndicated real estate project. It’s the lowest-cost structure to establish.

If you plan to manage property directly, make multiple investments, or act on time-sensitive opportunities, the checkbook structure earns its keep. And if you’re self-employed without full-time employees, ask us about the Solo 401k before setting up either. It is often the better tool. The right answer depends on your source of funds, your intent, and your situation, which is exactly what the discovery call is for.

Yes, and this may be the best-kept secret in retirement investing. It has been possible since 1975, though Wall Street has had little reason to mention it. Land, rental houses, apartments, commercial buildings, and interests in real estate partnerships can all be held in a self-directed IRA.

The essentials to understand: the IRA (or its LLC) owns the property, not you. The purchase contract, deed, insurance, and bank accounts are all in the plan’s name. Income flows back to the IRA, expenses are paid by the IRA, and the growth is tax-deferred (or tax-free in a Roth) just like any other IRA investment.

No. Any personal benefit to you or another disqualified person from an IRA asset prior to distribution is a prohibited transaction. You cannot live in the property, vacation in it, rent it to your kids, or lease office space in it to your own company.

The goal is using your retirement funds as a source of investment capital, and on that front the rules leave plenty of room to work.

The IRA, or IRA LLC does. Since the LLC owns the property, the plan must cover everything the investment incurs: taxes, insurance, repairs, management. This is why we stress reserves. In addition to the purchase price, the IRA needs enough money set aside to cover carrying costs and the unforeseen. Recommend 15-30% reserves.

The natural tendency when the IRA runs short is to write a personal check. Don’t. That is a prohibited transaction. If reserves run out, the legitimate sources of funds are income generated by the LLC’s investments and your ability to make new contributions to the custodian. Plan ahead.

No. Sweat equity is a form of prohibited contribution. As manager of a Checkbook IRA LLC you may make management decisions: choosing tenants, hiring contractors, negotiating deals. But the physical work, swinging the hammer or painting the walls, must be hired out and paid for by the LLC. The line is between managing the investment and personally adding value to it.

Yes, but it must be a non-recourse loan: a loan secured only by the property itself, with no personal guarantee from you. Guaranteeing your IRA’s debt personally is a prohibited transaction. A number of lenders specialize in non-recourse lending to retirement plans, and seller financing structured on a non-recourse basis works as well.

One consideration when leveraging IRA investments: income attributable to the financed portion of the property may be subject to unrelated business income tax (UBIT / UDFI). The same tax can apply when a retirement account conducts an active business rather than holding passive investments. This is not a reason to avoid leverage. It is simply a factor to run past your tax advisor when evaluating the deal. Solo 401k plans, notably, are exempt from UDFI on real estate acquisition debt, which is one of several reasons the Solo 401k is worth a look for those who qualify.

A common objection to holding real estate in an IRA is that the asset is illiquid, so how do you take your required minimum distributions? The answer is that RMDs do not have to be taken in cash. They can be satisfied through in-kind distributions, meaning you take an ownership interest in the property itself, or shares of the LLC as the distribution rather than selling at an inopportune time.

A fractional interest in the asset is distributed each year, its value counts toward the RMD, and the IRA keeps the rest. Illiquidity is a planning consideration, not a reason to avoid real assets in your retirement account.

The Solo 401k (individual 401k) is available to the self-employed with no full-time employees other than a spouse. For those who qualify, it often outperforms an IRA LLC: it offers checkbook-style control without needing an LLC or custodian, substantially higher contribution limits, exemption from UDFI tax on leveraged real estate, and the ability to borrow up to 50% of the plan balance (to a $50,000 maximum) for any purpose, something an IRA can never do. It also tends to be cheaper to maintain and more forgiving of transaction mistakes.

If you have self-employment income, even from a side business, ask us whether the Solo 401k fits your situation before defaulting to an IRA structure.

Yes. This is one of the most exciting things self-directed investing makes possible. The structure is sometimes known as a Rollover Business Startup (ROBS): a new 401k is created, and the 401k invests in a new C-Corporation whose shares are owned by the plan. We recommend adding 5-10% personally to the corporation. This way, you can operate the business yourself and pay yourself a salary, all while your retirement plan owns the growing company.

One note on eligibility: not all accounts qualify. Inherited IRAs and Roth IRAs generally cannot be rolled into a ROBS. Whether it’s a franchise, a friend’s business, or the venture you’ve always wanted to try your hand at, retirement funds can be the startup capital that gets it off the ground. These structures must be built correctly, so start with a conversation.

Yes. Precious metals meeting IRS purity requirements, including certain gold, silver, platinum, and palladium coins and bullion, are among the most popular self-directed investments. The metals must be held by a qualified storage facility, such as a safety deposit box at the bank of your choice, rather than in your safe at home. Personal possession of plan-owned metals creates a taxable distribution problem.

Getting started is as simple as calling IRA Advantage. During the initial conversation we’ll ask about your current retirement accounts, what you’d like to invest in, and your timeline.

The amount of detail firms request varies dramatically; as with our 1031 exchange practice at Equity Advantage, we take a proactive rather than reactive approach. The more we understand your objectives, the better equipped we are to help you achieve them, so we encourage prospective clients to ask us questions and answer ours.

From there, we handle the mechanics: establishing the account with a self-directed custodian, coordinating the transfer of funds, and, if the checkbook structure fits, forming the LLC and giving you the tools you need to open the bank account. Most investors are surprised how streamlined the process is.

In most cases, yes. IRA-to-IRA transfers are straightforward, and funds in a former employer’s 401k, 403b, or similar plan can generally be rolled into a self-directed structure. Funds in a current employer’s plan are usually restricted until you leave the company or reach a triggering age, though some plans allow in-service distributions. It is worth checking your plan documents.

It’s also not an all-or-nothing proposition. You can move all of your funds or any portion of them, keeping part of your retirement in traditional markets while directing the rest into investments you choose. Transfers and rollovers that are done correctly are not taxable events.

Yes, with correct structure. An IRA can be one of several members of an LLC alongside other investors. One of the advantages of the LLC structure is precisely its ability to accommodate multiple investors. Combining plan money with personal money or partnering with other people’s plans is possible, but the disqualified person rules govern who can participate and how, so these arrangements need to be built carefully from the start. Bring us the deal you have in mind and we’ll walk through the right way to structure it.

The cost varies with the structure. A standard self-directed custodial account is the least expensive to establish, while a Checkbook IRA LLC or Solo 401k involves setup and, in some cases, annual costs. Contact IRA Advantage today for a consultation and a quote for your situation.

Ultimately, your greatest security is experience. David and Tom Moore founded Equity Advantage in 1991 and launched IRA Advantage in 2008 to bring the same investor-first approach to self-directed retirement accounts. We’ve spent decades helping investors get where they want to be. Unlike the “one size fits all” approach of the big custodians, we sit down with you to find out where you are and where you want to go, then structure the plan that fits.

We’re not here to sell you an investment. We’re here to build the vehicle that lets you make the investments you understand and control. Your retirement, your way.