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Alternative IRA investment choice

Question: I am thinking about opening a self-directed IRA to invest in Real estate. What do you think of this idea?

Answer: I am always a little wary when the client wants to do a self-directed IRA. The owner of a self-directed IRA can choose to invest in real estate, limited partnerships, mortgages, notes, business, etc. - rather than being limited to the typical investments such as stocks, bonds, mutual funds, etc. This flexibility is appealing to IRA owners who want more control over the investments.

However, the flexibility also brings a lot of legal and tax complexity. Many hidden traps might cause prohibited transactions problems, which can disqualify the IRA. Or it might result in unrelated business taxable income(which is taxable). Some IRA owners are required to File a tax return(Form 990-T) and have the tax liability if specific events are triggered. And Typically, the IRA custodian will not take responsibility for those legal and tax liability.

Since self-directed IRAs has become increasingly popular, more and more people invest a large sum of money into it. It makes them attractive targets for fraud promoters. Many low-cost custodians want to sell you the IRA account but fail to provide proper management, and good advice and IRA account holder are left with the impossible task of handle the complexity of the structure.

If you would like to make an appointment to discuss more, please give this office a call 415-704-8989 or email me at Book a meeting online. More articles see

Circular 230:The articles are for general information only. In accordance with IRS Circular 230 they are not considered tax opinions for purposes of relying on such statements in any challenge of the reporting of the above transaction by the IRS. If a full tax opinion is required certain procedures must be met . Also there is a significant cost for a full tax opinion to meet the requirements of Circular 230.

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