The trustee/custodian provides custody of the assets, processes all transactions, maintains other records pertaining to them, files required IRS reports, issues client statements, helps clients understand the rules and regulations pertaining to certain prohibited transactions, and performs other administrative duties on behalf of the self-directed IRA owner.
Internal Revenue Code Sections 408 and 4975 prohibit disqualified persons from engaging in certain types of transactions.
Some of the investment options permitted under the regulations include real estate, stocks, mortgages, franchises, partnerships, certain qualified precious metals, private equity, and tax liens.
This can be a platform to fund a start-up business or other for-profit venture that is managed by someone other than the account owner of the IRA.
[6] A self-directed IRA can hold precious metals, which are typically held by a third-party custodian.
As a result, Double Eagle gold coins (minted in the United States in the nineteenth and early twentieth centuries) and South African Krugerrands are disallowed because they do not meet this standard.
Bullion is also permissible if it meets a standard level of fineness and is produced by a COMEX or NYMEX approved refiner.
[12] When the property generates cash either with rental income or from a sale, those funds go directly back to the IRA.
For example, neither the IRA holder nor any disqualified persons (including family members) to that plan may live in or vacation in the property.
[20] Internal Revenue Code Section 408 prohibits IRA investments in life insurance and in collectibles, [21] such as artwork, rugs, antiques, metals[22] (there are exceptions for certain kinds of bullion), gems, stamps, coins, alcoholic beverages, and certain other tangible personal property.
In this approach, the taxpayer establishes and manages a limited liability company (LLC) that has the IRA as its only investor.
Although the IRS challenged checkbook control as an unlawful self-dealing arrangement, its argument was rejected by the United States Tax Court in Swanson v. Commissioner (1996).