One of the many reasons real estate investors love the self-directed IRA (SDIRA) is the control they have over both their assets and participation with traditional custodians. But many investors are also aware of the SDIRA’s relative security as an asset protection tool. If you weren’t aware of this benefit before, you are now. Don’t make the same mistakes other investors make. Watch out for threats to your SDIRA’s security. If you establish an SDIRA, it’s smart to do what you can to protect it; read on to learn how. When pros like attorneys discuss self-directed IRAs being “safer” than other investment vehicles, they’re referring to safety in two senses of the word. Your SDIRA isn’t “safe” from any type of attack, but it does protect you legally: So, this article isn’t intended to suggest IRAs are inherently risky, just to remind you how not undermine its protections. The sticky reality is that for real estate investors, self-directed IRAs can be riskier when they own assets (including REI property) that have liabilities attached. The biggest way you can be a danger to yourself and your self-directed IRA is by performing prohibited transactions. The prohibited transaction rules are a gift from our buddies at the Department of Labor. Basically, there are things you can’t do in a business context with your SDIRA: For your convenience, we’ve compiled an educational resource about avoiding prohibited transactions, complete with examples. Our prohibited transaction resources can help you educate yourself to the point you avoid engaging in such transactions with your self-directed IRA. The only downside to the SDIRA’s freedom from custodians is such freedom means you are responsible for dodging prohibited transactions. You have additional options for protecting your IRAs. For those of us concerned about our real estate assets, the liability-limiting powers of the SDIRA LLC offer an elegant fix. The ideal legal tool for a long-term SDIRA owning REI is the SDIRA LLC. This variation of the retirement plan is hybridized into an entity, a more secure option for investors. The SDIRA LLC is an alternative to the IRA Business trust, another option for IRA-owned entities. Real estate investors are attracted to the LLC option because of its strong liability protections. Using an SDIRA LLC gets investors the flexibility to buy real estate with IRA funds and the protection of an LLC, or the best of both worlds.How Safe Is Your Self-Directed IRA?
Your Biggest Threat: Prohibited Transactions Explained
How to Protect Your Self-Directed IRA
Consider a Self-Directed IRA LLC for Liability Protection
Last Updated:
July 30, 2019
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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Certainly! The article delves into the nuances of Self-Directed IRAs (SDIRAs), focusing on their benefits, security, and potential risks for real estate investors. It covers essential concepts related to SDIRAs, asset protection, prohibited transactions, and strategies to safeguard investments within an SDIRA. Let's break down the key concepts:
Self-Directed IRA (SDIRA)
This retirement account allows individuals to have greater control over their investments, including real estate, beyond traditional stocks and bonds. The article highlights the appeal for real estate investors due to the autonomy it offers in managing assets.
SDIRA Security and Asset Protection
The article discusses how SDIRAs can provide legal protection by shielding assets from personal lawsuits and making them difficult to sue compared to individuals or corporations. However, it warns investors against undermining these protections inadvertently.
Prohibited Transactions
The Department of Labor outlines certain transactions that SDIRA holders must avoid. Self-dealing, involving business with oneself via the SDIRA, and transactions with disqualified persons (relatives, spouses, business partners) are highlighted as prohibited, with potential severe penalties for violations.
Protection Strategies
The article suggests employing a Self-Directed IRA LLC as a sophisticated strategy for liability protection. This legal entity hybridizes the retirement plan into an LLC, offering stronger safeguards for real estate investments within the IRA.
Scott Royal Smith and Expertise
Scott Royal Smith, an asset protection attorney and seasoned real estate investor, contributes to the article's credibility. His mission involves aiding investors in asset protection, wealth creation, and freeing up time. His expertise is reflected in his focus on SDIRAs and asset protection strategies.
Additional Resources and Community
The article offers educational resources, including masterclasses, mentoring opportunities, and a community platform to educate investors about SDIRAs and asset protection. It emphasizes the importance of learning and staying informed to avoid pitfalls.
The article effectively intertwines legal insights, practical advice, and expert guidance, making it a valuable resource for real estate investors seeking to maximize the benefits of SDIRAs while safeguarding their assets.
If you have any specific questions or need further information on any of these topics, feel free to ask!