IRS Rules
In short
Self-directed IRAs and Solo 401(k)s give you two powerful advantages: tax-sheltered growth and complete investment control.
In exchange for substantial tax benefits, your retirement account must serve one purpose exclusively, which is saving for your future. The IRS is strict about this. No current personal use, no side benefits, just long-term retirement wealth building.
Traditional retirement accounts make compliance easy by limiting you to stocks, bonds, and mutual funds. Self-directed plans remove those restrictions entirely.
Start here
Exclusive benefit rule
The exclusive benefit rule is the foundation of all tax-advantaged retirement accounts. Everything else builds on this principle. Here's what it means: your retirement plan exists for one purpose, providing benefits to you (the participant) and your ...
Read articleDisqualified persons
IRC Section 4975 prohibits your retirement plan from engaging in any transaction, direct or indirect, with a specific group of individuals and entities known as disqualified persons. In a self-directed environment, these people are off-limits for any ...
Read articleProhibited transactions
A prohibited transaction is any direct or indirect exchange of value between your retirement plan and a disqualified person. These rules exist for one purpose: to prevent self-dealing and ensure your plan's tax advantages serve retirement growth, not ...
Read articleProhibited investments
The IRS doesn't tell you what you can invest in. It tells you what you can't. This "open architecture" approach means all investments are permissible unless specifically prohibited by statute. That gives you remarkable flexibility: real estate, ...
UDFI - unrelated debt-financed income
Leverage is one of the most powerful tools in real estate investing. Using borrowed money to control larger assets can dramatically accelerate wealth building. Your retirement account can use leverage too, but there's a tax consequence you need to ...
UBIT - unrelated business income tax
One of the great advantages of self-directed retirement accounts is tax-sheltered growth. Most investments enjoy complete protection from taxation. But there's an exception: when your plan operates an active trade or business, it may owe tax on that ...
Common prohibited transactions
Prohibited transactions are the most consequential rules in self-directed investing. One violation can disqualify an entire IRA, triggering taxes and penalties on the full account balance in the year the transaction occurred. The scenarios below ...
Ready to continue your journey?
Whether you are ready to get started or have more to learn first, we have you covered.