Question 1

What is a self-directed IRA?

Accepted Answer

A self-directed IRA is a traditional or Roth retirement account that allows investments beyond typical stocks and bonds, including real estate, private funds, and private loans. A specialized custodian administers the account, while you choose investments. Standard IRA rules still apply, including restrictions on self-dealing and potential taxes on certain income.

Question 2

What can you invest in with a self-directed IRA?

Accepted Answer

Beyond stocks, bonds and mutual funds, a self-directed IRA can hold private credit, private equity and real estate on a primary and secondary basis, direct and co-investments, venture investing, direct secondaries, aircraft and cargo shipping leasing, multi-alternative, general partner interests, litigation finance, energy, and other special situations. The law excludes only a few assets, such as life insurance and most collectibles. The bigger limits come from the custodian, who must agree to hold the asset, and from the rules against self-dealing.

Question 3

What is UBTI in an IRA?

Accepted Answer

Unrelated business taxable income, or UBTI, is income an IRA earns from an active business or from debt-financed investments, rather than from passive sources such as interest or dividends. It can arise from some partnerships and leveraged real estate. If UBTI exceeds $1,000 in a year, the IRA itself may owe tax and must file IRS Form 990-T, even though IRAs are otherwise tax-deferred.

Question 4

What are prohibited transactions in a self-directed IRA?

Accepted Answer

You cannot use the IRA to benefit yourself or certain close relatives now. That means you cannot buy property from your own IRA, live in a house it owns, lend it money, or have it lend to your children or parents. Breaking these rules can disqualify the entire IRA, making its full value taxable as if it had been withdrawn.

What is a self-directed IRA?