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In this video, we’re going to cover some of the main rules of using a self-directed account. Because a self-directed IRA is retirement account, the IRS has some strict rules you have to follow to maintain the tax-free status of the account.

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1) You cannot purchase an investment from yourself or disqualified persons.
Don’t try to deal with disqualified persons or try to find loopholes to the rules. The IRS has very strict regulations, as well as severe penalties. It’s not worth it to try to break the rules. If you have a deal in mind and want to buy real estate from a disqualified person, just use a different financing method.

2) The self-directed IRA must hold the title on the property.
This means you can’t have the property under your name, your LLC, your trust, or ANYTHING else. It must be owned by the IRA. There is a structure that exists as a self-directed IRA/LLC combo – but even in that scenario, the IRA MUST be on the title.

3) All expenses must be paid by the self-directed account.
Need a repair on your property? Have a tax bill from the city? HOA fees? Every single expense related to the investment must be paid through the self-directed IRA, no matter how big or small. You’ll need to send your requests over to your custodian, and they can help process the transaction.

4) There can be no indirect benefits.
What does this mean? All transactions should only benefit the self-directed IRA retirement account, not you. So no using the property as a vacation home or storing things in the garage.

5) All money made from the investment should be placed into the IRA.
Don’t think about investing with an IRA as a means to increase personal cash flow. All profit from the investment must be deposited directly into the IRA. If you’re looking for cash flow, this is not the strategy for you! An IRA investment is for retirement purposes.

6) You must invest in certain assets.
While certain types of investments are allowed, others are not. Real estate is on the table, but things like antiques and comic books are not. If you have questions about this, reach out to your custodian and they can give you a clear answer.

7) Early distributions are not allowed.
The system is set up to discourage account holders from using their retirement funds before reaching the designated age of 59 1/2. In normal circumstances, if an investor withdraws funds from their account before this time, they will be subjected to penalties.

The Power of a Self-Directed IRA for Building Wealth:

Self-Directed IRA Prohibited Transactions & Other Rules:

How to Use a Self-Directed IRA to Invest in Real Estate:
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Clayton Morris believes that everyone has the right and the ability to achieve financial freedom – and works to help others to know how to do so. Clayton founded Morris Invest that builds portfolios for their clients and guides them through the buying process, ensuring cash-flowing investments.

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DISCLAIMER: I am not a financial adviser. I only express my opinion based on my experience. Your experience may be different. These videos are for educational and inspirational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. There is no guarantee of gains or losses on investments.

AFFILIATE DISCLOSURE: Some of the links on this channel are affiliate links, meaning, at NO additional cost to you, I may earn a commission if you click through and make a purchase and/or subscribe. However, this does not impact my opinion. We recommend them because they are helpful and useful, not because of the small commissions we make if you decide to use their services. Please do not spend any money on these products unless you feel you need them or that they will help you achieve your goals….(read more)

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REVEALED: Best Gold Backed IRA

As an investor, one of the most effective ways to diversify your portfolio is by using a self-directed IRA. A self-directed IRA allows you to have more control over your investments and decide how your retirement funds are invested.

However, there are rules that must be followed when using a self-directed IRA. In this article, we’ll discuss the 7 rules of using a self-directed IRA.

Rule #1: Choose a reputable custodian

One of the most important aspects of using a self-directed IRA is choosing a reputable custodian. The custodian is responsible for holding your retirement funds and ensuring that all investment transactions comply with IRS regulations.

When selecting a custodian, you want to look for one that has experience with self-directed IRAs and a proven track record of responsible handling of funds.

Rule #2: Be familiar with prohibited transactions

With a self-directed IRA, there are specific transactions that are not allowed by the IRS. These are known as prohibited transactions and include transactions with family members, personal use of assets, and certain types of investments.

To avoid any penalties or taxes, make sure you are familiar with prohibited transactions and consult with a professional before making any investments or transactions.

Rule #3: Understand the investment options

As the name suggests, a self-directed IRA allows you to invest in a wide range of assets beyond the usual stocks, bonds, and mutual funds. You can invest in real estate, precious metals, private equity, and much more.

However, it’s important to do your due diligence and understand the risks associated with each investment option. Make sure you have a thorough understanding of the asset and its potential for return before making any investments.

Rule #4: Stay within contribution limits

Like with traditional and Roth IRAs, there are annual contribution limits for self-directed IRAs. As of 2021, the annual contribution limit for those under 50 is $6,000, while those over 50 can contribute up to $7,000.

Going over these limits can result in penalties and taxes, so make sure you are aware of your contribution limits and stay within them.

Rule #5: Keep meticulous records

With a self-directed IRA, it’s essential to keep detailed records of all transactions and investments. This includes keeping receipts, invoices, and any other documentation related to the investment.

Having meticulous records will make tax reporting much easier and can help you avoid any potential penalties or audits.

Rule #6: Be aware of deadlines

There are deadlines associated with self-directed IRA transactions, such as filing for a required minimum distribution (RMD) or making contributions before the end of the tax year.

It’s crucial to be aware of these deadlines and make sure you comply with them to avoid any penalties or negative tax consequences.

Rule #7: Consult with a professional

A self-directed IRA can be a powerful investment tool, but it’s essential to consult with a professional before making any decisions. The rules and regulations surrounding self-directed IRAs are complex and can be easy to misunderstand.

Working with a professional can give you the guidance you need to make informed decisions and avoid any costly mistakes.

In conclusion, using a self-directed IRA can be an effective way to diversify your portfolio and take control of your investments. However, it’s crucial to follow the rules and regulations associated with self-directed IRAs and work with a reputable custodian and professional to ensure success.