Roth IRA No-No’s
Many people think that Roth IRA investing options are limited. While there are some rules that apply to investing IRA funds, they are fewer than most people think.
Here, we look at what is against the rules, because there is really no way to cover everything that you can legally invest in!
If you do not follow the rules and guidelines for Roth IRA investing, you could be required by law to liquidate the account immediately. So, it is very important that you and your account custodian are acquainted with the regulations. But, relax! They are relatively simple to learn, and we’ll go over a few just to break the ice a little.
When it comes to investing IRA money, there are some prohibited transactions. For example, you cannot borrow money from it, sell property to it or use it as security for a loan. Custodians are not allowed to receive unreasonable compensation for managing the account either.
The Roth IRA investing rules are the same as those for a traditional account, except that you are not required to take distributions from the account after you reach a certain age. With the traditional account, you are required to take minimum distributions on a yearly basis after you reach the age of 70 and a half. As we are living longer and many people are continuing to work well into their seventies, it could be advantageous to “not” be required to take money out of the account.
When it comes to investing IRA dollars, there are certain things that are not allowed. You cannot buy art, rugs, antiques, metal, gems, stamps, coins, alcoholic beverages or other collectibles. However, there are exceptions to the “coin” rule. The account can hold US minted gold, silver and platinum coins or bullion.
One last “no-no” for Roth IRA investing is referred to as “self-dealing”. You could not invest in your own company, if you are the majority stock holder. You could not buy a home and allow a close family member to live in it, even if they pay rent.
Basically, any investment that benefits you or a family member personally, rather than the retirement account, would be considered self-dealing. What the government really wants concerning investing IRA funds is that your retirement will be secure and easy to liquefy.
If you die, they want the account to be liquid enough that a beneficiary can get the cash value of the account relatively quickly. Things like antiques and artwork are hard to liquidate and it is hard to assign a fair market value to them.
Investing IRA money in real estate, on the other hand, is one of the many things allowed under the rules. The fair market value is easy to establish and property can usually be sold quickly, in the event that the account owner died.
The only Roth IRA investing rules regarding real estate transactions are those that concern self dealing. The advantages to the knowledgeable real estate investor include no capital gains tax, no state taxes on profits and tax-free interest earned.
If you don’t have the knowledge, get some education and look into the many Roth IRA investing options. When you are ready to retire, you’ll be glad that you did.
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