Can I Sell an Asset to My IRA?
Many investors ask if it is permissible to sell assets into their IRA. The answer is yes, provided that any prohibited transaction rules have not been violated.
Prohibited transactions occur when either you or a disqualified person derive personal benefit from an IRA transaction, often by investing in an entity owned by either of you or both of you.
Self-Directed IRAs
To prevent yourself from reaping any personal benefit from any transaction, the key to successful IRA investing lies in using funds solely to purchase property with legal ownership held within an IRA account. You may utilize third parties such as realtors for sales transactions; or conduct the sale yourself. Both should provide internal forms that must be filled out and recorded as warranty deeds prior to selling at fair market value to buyers.
Self-directed IRAs give you greater investment options than traditional IRAs, including real estate, private equity, notes, precious metals and cryptocurrency. However, these investments typically carry higher fees and may be more volatile. Furthermore, these accounts must abide by complex IRS tax rules; failing to abide by them could incur extra taxes, penalties and even the loss of tax deferral status for your account – it is advised to consult a tax professional prior to making any transactions or financial commitments.
Real Estate
If you purchase real estate with an IRA, it must adhere to strict guidelines. Failing to comply can result in significant tax penalties or even the complete loss of investment. You cannot sell property owned by your IRA directly to yourself (known as prohibited transactions), provide services on it (such as maintenance work or cleaning up abandoned houses), provide loans against it or use it for personal gain.
Furthermore, you must ensure the property is correctly titled. As your IRA owns the property and not you personally, its deed should state as such: IRAR Trust Co. FBO John Doe #12345.” Failure to do this may cause delays during the sales process and require assistance from a knowledgeable self-directed IRA custodian who can also offer guidance about alternative strategies to meet retirement goals.
Stocks
Stocks are an extremely popular investment choice among investors. A tax-advantaged IRA environment enables these investments to expand more quickly as capital gains don’t get siphoned off immediately by taxes compared to what would occur in a taxable brokerage account, creating the opportunity for compounding and helping build retirement savings – especially when dividend-paying stocks are reinvested as dividends.
Contrasting with employer-sponsored retirement plans that may only offer limited investment choices, IRAs offer more investment diversity for their investors to create customized portfolios according to research findings, convictions, and risk preferences.
Some investors opt for diversification by including ETFs and mutual funds in their portfolio, providing broad market exposure with reduced fees. Meanwhile, others prefer taking an active approach by picking individual stocks, sometimes “shorting” (borrowing shares that don’t belong to them with the intention of selling them at later dates); this practice is prohibited in IRAs however.
Mutual Funds
One of the key advantages of an IRA is being able to purchase and sell stocks tax-free (with some exceptions, like taking distributions before age 59 1/2). But many don’t know you can also invest in mutual funds within an IRA account.
However, it’s crucial to keep in mind that trading with any disqualified parties within an IRA violates the exclusive benefit rule and must be strictly observed.
As with purchasing real estate with your IRA, the same basic rules apply when using it to acquire property. Any transactions between yourself or anyone related to you and the property would constitute prohibited transactions and could incur severe IRS penalties – an easy way of avoiding this scenario would be submitting the “Sell Direction Letter” along with all required documentation to Entrust for registration as your IRA vested.
Categorised in: Blog