Troubling Self-Directed IRA Restrictions | SDIRadio #228

My friends, get ready to learn something about a huge limit on your IRA that is TOTALLY OPPOSITE what you’ve been told by everybody else.  This is a big, big deal and a huge risk factor for your self-directed IRA.  I’m Bryan Ellis.  I’ve got the details for you now in Episode 228.

Hello, SDI Nation!  Welcome to the podcast of record for savvy self-directed investors like you, where we help you take control of your investments and your legacy, and today, I’ll do that by helping you to protect your self-directed IRA in the face of transactions that appear totally kosher, but could be like a nuclear detonation in your retirement savings.

Let’s start the show with a bribe.  Hehehehe  Here goes:

I want you to SUBSCRIBE to this show on iTunes.  That tells the iTunes people that we’re producing good stuff, and in turn they send us more listeners.  So here’s my proposal:  If I teach you something today you didn’t know before, which is DIRECTLY RELEVANT TO THE SAFETY OF YOUR INVESTMENTS either now or in the future, then will you SUBSCRIBE to this show for free when we’re done with this show in a few minutes? 

That’s all I ask.  Deal?  Thanks so much!

Awesome, let’s get to it.  This episode was spurred by an article I saw over at MarketWatch, where a debate broke out concerning whether a self-directed IRA can buy assets from or sell them to a COUSIN of the IRA owner.  The broadly accepted advice on this – spelled out on the IRS website – is that the only family members expressly disqualified are ancestors – like parents and grandparents – along with your descendants and their spouses.  This seems to indicate that other family members – like siblings, aunts, uncles, cousins, etc. are not disqualified and therefore are fair game as counterparties for your self-directed IRA.

So is it kosher for your IRA to do business with a cousin, or other non-lineal family members?  Folks, that’s the WRONG QUESTION entirely, and looking at it that way can DESTROY your IRA.  Let’s look at that right after I tell you how to get 0% interest lines of credit of $50,000 to $250,000 by working with my friends at Fund & Grow.  A quick story – I was recently at the Georgia Real Estate Investors Association meeting, and another member came up to me and said “it works!”  I was really happy to hear this, but I didn’t know this person or what they were talking about… and that’s when they told me they’d listened in to the webinar I did with Fund & Grow… and as a result, this local investor was able to achieve an eye-popping amount of zero-interest credit!  It was really cool because they just approached me randomly… I wasn’t a speaker at that meeting or anything of the sort.  But this guy and his wife sought me out specifically to tell me about their GREAT results of getting 0% interest funding through my friends Ari & Mike at Fund & Grow.   Folks, if you need funding for any of your deals, do yourself a favor and reach out to them.  You can find them at SDIRadio.com/credit, and when you go there, you’ll learn how to have an extraordinary competitive advantage.  I believe in them.  Check them out right now at SDIRadio.com/credit.

So… can your IRA do business with a cousin or aunt or uncle?  Or is that even the right question?  Well, to be blunt, it’s absolutely the WRONG question.

Here’s the thing:  Yes, the IRS does stipulate a limited set of family members who are expressly disqualified from doing business with you through your IRA.  So, for example, if your parents or grandparents or even children owned a piece of real estate, and you wanted to buy it into your IRA, you can’t do it.  That’s prohibited very clearly.  But as far as family is concerned, the answer changes if the owner of the property isn’t your direct ancestors or descendants, but rather a sibling or cousin.  Those, at first glance, seem to be ok… and that’s the broadly accepted opinion.

Alas, there’s more… FAR MORE… than meets the eye, and it’s all legally uncharted waters.  And I’m not giving legal advice here, though I am giving you exceptionally good information, hehehehehe.

In moving forward, keep this little tidbit in mind:  The IRS lists 10 groups of people who are DISQUALIFIED from doing business with your IRA.  That list is linked in the resources for today’s show.  Number 6 on that list is “family members”… and we know from other sections that this only means lineal ancestors and descendants and their spouses.

Ok, that’s great.  Siblings, cousins, aunts, uncles… none of them are listed as disqualified.  So it’s cool to buy from them, right?

Ummm…. Not so fast, sparky.

Family members only make the list at #6.  What’s #1?  That honor goes to anyone who can be described as a FIDUCIARY of the plan.  So what, right?  The custodian is the fiduciary, right?  Yep, that’s right.  But my trusted legal advisor Tim Berry – the Great One, we call him – tells me that Section 4975 of the tax code defines Fiduciary as anyone who has discretionary authority over a retirement plan.

Do YOU have discretionary authority over your retirement plan?  Ummm…. Yes, you do.  Remember, it’s *SELF* directed.

But that only prohibits the IRA from doing business directly with you, right?  You’d think so, but… no.

According to Tim, the examples in that regulation make it arguable that the disqualification extends not just to the fiduciary, but to anyone in whom the fiduciary has an “interest” that could sway the judgment of the fiduciary.  Notice the use of the vague word “interest”.  It doesn’t say bloodline.  It doesn’t say family relationship.  It doesn’t even say “personal relationship”.  It just says “interest”.

Is it arguable that you have an interest in your siblings, your aunts, your uncles, your nieces or nephews?  Sure it is.

So the bad news is this:  The law says YOU are a fiduciary of your plan, and that you – and anyone in whom you’ve got an interest – are disqualified from doing business with your IRA.  That’s a sobering thought.

The good news:  Tim says he’s never seen this authority asserted by the IRS, so maybe their operating definition is narrower than what appears to be stipulated in law.

So there you have it:  Chances are stratospherically high that 7 minutes ago, you thought your IRA could safely do business with siblings or cousins.  You probably also didn’t know you are technically a fiduciary of your own self-directed IRA… and because of that troublesome designation, anyone in whom you have an interest is prohibited from engaging in transactions with your IRA.

Hey – I’m sorry the news isn’t a little better.  My advice:  Before allowing your IRA to do business with ANYONE with whom you’ve ever had a relationship of ANY sort… personal or business… get advice from the Great One, Tim Berry, or some other attorney who REALLY knows self-directed IRA’s.

Tim’s contact information is linked in the resource page for today’s show at SDIRadio.com/228.

So there you have it… did I deliver on my promise to you at the beginning of the show… did I teach you something about self-directed IRA’s you didn’t know which could end up being DIRECTLY RELEVANT TO THE SAFETY YOUR ACCOUNT?  If so, *PLEASE* stop by iTunes and subscribe to this show.  It’s easy and free, and there are directions available at SDIRadio.com/howto.  That’s SDIRadio.com/howto.

Thanks for joining me today – we’ve got a lot more for you coming up as we continue helping you take control of your investments AND your legacy.

My friends, invest wisely today, and live well forever!

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