Self-Directed IRAs and Alternative Investments: Prohibited Transactions, RMDs, Valuation Issues, and Correcting Errors

Most taxpayers purchase stocks, bonds, and mutual funds in their retirement accounts. Taxpayers often use SDIRAs to buy alternative investments, including cryptocurrency, land, hedge funds, or racehorses. SDIRAs are subject to the same rules under Sections 408 and 408A as other IRAs; however, complying with these rules is usually more difficult for SDIRAs. Finding a custodian, valuing the assets at year-end, and making required minimum distributions can all be problematic.

Many people, when asked, assume a SDIRA is something that they already have with their bank or brokerage firm, and don’t realize they could be doing more with their tax advantaged accounts (IRAs, 401(k)s, SIMPLEs, SEP-IRAs, Health Savings Accounts, etc.).     Standard tax advantaged accounts are usually opened with a bank or brokerage, where the account owner has limited investment options offered by banks/brokerage firms such as mutual funds, exchange-traded funds (ETFs), and similar security like investments.  By contrast, an SDIRA is opened at a custodial company that offers a wider array of alternative investments such precious metals, real estate, crypto assets, promissory notes, private companies and more. 

Since SDIRAs are often funded with larger and more complex investments, they are targets for IRS scrutiny. Numerous court cases and PLRs detail prohibited transactions, including self-dealing that can negate the IRA subjecting the taxpayer to taxes and penalties on the entire investment. Individuals and tax practitioners need to understand how to contribute to SDIRAs without running afoul of these guidelines.

Listen as our panel of retirement plan experts explains how to benefit from alternative IRA investments while meeting current compliance requirements.

I. SDIRAs: introduction

II. Alternative investments

A. Cryptocurrency

B. Coins

C. Land

D. Rental Real Estate

E. Promissory Notes

F. Private Companies

G. Venture Capital/Startups

H. Others, with the exception of life insurance, collectibles, and S Corporations

III. Valuation issues

IV. Prohibited transactions

V. Required minimum distributions

VI. Correcting IRA errors

VII. Court cases and PLRs

VIII. Best practices

The panel will review these and other critical issues:

• What types of investments cannot be contributed to an IRA?
• What valuation methods are used to correctly determine the year-end values of alternative investments in IRAs?
• Caveats and considerations of holding real estate in an SDIRA
• Maintaining necessary liquidity in an SDIRA
• What transactions are prohibited for IRAs and SDIRAs?

Learning Objectives

After completing this course, you will be able to:

• Determine specific actions that constitute self-dealing for an IRA
• Identify assets that are not allowable IRA contributions
• Ascertain methods to value alternative assets at year-end that are in SDIRAs
• Decide how to correct improper and excess contributions made to IRAs

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite:

  Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of individual income taxation, including itemized deductions, individual income tax credits, net operating loss limitations including carrybacks and carryforwards.

  
  

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).