If you want complete control of your retirement account, a self-directed IRA(SDIRA) is the best way to go. However, if you do open an SDIRA, you should consider the fact that you’ll be held liable for how you run it.

Although the account has a custodian, you can be held responsible for any malpractice or breach of rules. Therefore, it’s important to know the rules and regulations of an SDIRA:

Be Aware of Your Disqualified Persons

The notion of disqualified persons becomes very important during auditing and tax collecting. Essentially, a disqualified person is a person who’s able to affect the operations and activities of any tax-exempt organization considerably.

Thus, if you have financial interactions with a disqualified person, your IRA could lose its tax-advantaged status. To avoid this, it’s essential to be aware of your disqualified persons.

Generally, disqualified persons constitute family members like your spouse, children, grandchildren, and parents. Furthermore, other financial stakeholders, such as your IRA beneficiary, investment advisor, and business partner, are also considered disqualified persons.

Don’t Engage in Prohibited Transactions

To stay out of trouble legally, you mustn’t engage in any prohibited transactions. The IRS characterizes a prohibited transaction as one in which there is improper use of the IRA by you, your beneficiary, or a disqualified person.

Many of these prohibited transactions involve financial interactions with disqualified persons. For example, selling a home through your IRA to your son is a prime example of a prohibited transaction.

Furthermore, giving out loans, exchanging services, and transferring assets to a disqualified person are also prohibited transactions.

Lastly, through your IRA, you also want to avoid any transactions construed as self-dealing.

Be Conscious of Illegal Investments

Through your SDIRA, there are three broad classes of investments that you are prohibited from investing in. Firstly, you can’t make any investments in the insurance industry, and doing so can have significant adverse impacts on your IRA.

Furthermore, you’re also not allowed to invest in any collectibles. However, there are some exceptions for coins and other precious metals. Lastly, you also can’t invest in any S corporations.

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