What Are You Not Allowed To Put Into A Self-Directed IRA?

Wednesday, July 17th 2024

Self-directed Individual Retirement Accounts (IRAs) provide greater investment diversification than their traditional or Roth counterparts, offering increased flexibility and higher potential returns, with additional responsibility and limitations placed upon what type of investments may be held by you. We will explore what assets cannot be put into self-directed IRAs as well as any regulations which govern them here in this comprehensive guide.

Understanding Self-Directed IRAs

Before discussing prohibited investments, it is vitally important to understand self-directed IRAs. These accounts allow greater control over retirement savings by permitting you to invest in multiple asset classes at once – both traditional and Roth varieties exist, each providing similar contribution limits and tax benefits as its non-self-directed equivalents.

Self-directed IRAs require the services of an expert custodian to keep and administer assets properly, reporting activities to the Internal Revenue Service (IRS), ensuring compliance with IRS rules, and meeting compliance obligations. Working with knowledgeable custodians is vital as violating self-directed IRA rules can incur substantial financial penalties.

Prohibited Investments

The IRS has provided an exhaustive list of prohibited assets you must avoid placing into your self-directed IRA, such as:

Prohibited Transactions

In addition to restricting investment choices for self-directed IRAs, the IRS also places restrictions on transactions performed within them. Engaging in prohibited activities could incur severe penalties such as disqualifying an entire IRA; here are some commonly prohibited transactions:

Understanding Unrelated Business Taxable Income (UBTI) and Unrelated Debt-Financed Income (UDFI)

Though not explicitly prohibited, certain income generated through your self-directed IRA investments could trigger tax implications. Two such categories include Unrelated Business Taxable Income (UBTI) and Unrelated Debt-Financed Income (UDFI).

To minimize these tax consequences, it’s advisable to work closely with both your self-directed IRA custodian and tax advisor in structuring investments to minimize UBTI/UDFI potential.

Navigating the Complexities of Self-Directed IRAs

Self-directed IRA investments offer opportunities for diversification and potential returns; however, their rules and regulations are often complex and subject to tight implementation by the IRS. To be able to traverse self-directed IRA accounts while avoiding prohibited transactions and investments consider these tips on making the most of them:


Self-directed IRAs offer investors an exciting way to diversify their retirement savings portfolio and potentially achieve higher returns, but this increased responsibility comes with it, along with an array of rules and regulations regulating which investments are permitted. By understanding prohibited assets and transactions as well as working with knowledgeable professionals to conduct thorough due diligence on potential investments you can navigate your way safely through self-directed IRAs to make the most of your retirement savings plan.

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Every person wants peace of mind, regardless of their retirement goals. If you’re interested in adding gold and silver to your retirement plan, you can do so by establishing a self-directed IRA. These types allow you to build a retirement portfolio that appreciates in value on. Like any investment instrument it is important to do thorough research. For more details, take a look at our gold IRA company reviews for the “top firms in the USA below.

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