What types of transactions are allowed in an SDIRA?

A Self-Directed IRA (SDIRA) provides account holders with the flexibility to invest in a wide range of alternative assets beyond traditional stocks and bonds. However, not all transactions are allowed, and certain IRS rules must be followed to maintain the account’s tax-advantaged status.

Below, we’ll outline the types of transactions permitted in an SDIRA, along with guidelines to ensure compliance.

Permitted Transactions in an SDIRA

The IRS does not provide a definitive list of allowable investments but instead outlines certain prohibited transactions. This means that as long as an investment does not violate IRS rules, it is generally allowed.

1. Real Estate Investments

✅ Allowed:

• Purchasing rental properties, commercial real estate, raw land, or multi-family units.
• Holding real estate as a passive investment within the SDIRA.
• Using a non-recourse loan for real estate purchases (if permitted by the custodian).

🚫 Not Allowed:

• Personally living in or using the property.
• Buying from or selling to a disqualified person (e.g., yourself, spouse, parents, or children).

2. Private Equity & Private Stock

✅ Allowed:

• Investing in startups, private companies, hedge funds, and venture capital firms.
• Purchasing private stock from businesses not publicly traded.

🚫 Not Allowed:

• Investing in a company where you or a disqualified person own 50% or more.
• Holding a controlling interest or receiving compensation from the company.

3. Private Lending (Notes & Mortgages)

✅ Allowed:

• Lending money through promissory notes.
• Issuing private mortgages secured by real estate.
• Investing in peer-to-peer lending platforms (if allowed by the custodian).

🚫 Not Allowed:

• Lending to yourself, your spouse, or other disqualified persons.
• Offering a loan secured by personal assets.

4. Precious Metals

✅ Allowed:

• Investing in IRS-approved gold, silver, platinum, and palladium.
• Storing metals at an approved depository.

🚫 Not Allowed:

• Holding metals personally.
• Investing in collectibles such as numismatic coins.

5. Cryptocurrency

✅ Allowed:

• Purchasing Bitcoin, Ethereum, and other cryptocurrencies through an SDIRA.
• Holding digital assets in an approved wallet or exchange.

🚫 Not Allowed:

• Holding cryptocurrency in a personal wallet.
• Transferring assets outside of the SDIRA’s control.

6. Tax Liens & Tax Deeds

✅ Allowed:

• Purchasing tax liens or tax deeds at auctions.
• Receiving interest from tax lien certificates.

🚫 Not Allowed:

• Buying tax liens from disqualified persons.
• Using SDIRA-owned property for personal benefit.

7. Wholly-Owned LLCs ("Checkbook Control")

✅ Allowed:

• Establishing an IRA-owned LLC to streamline investment transactions.
• Using an LLC business checking account to make purchases.

🚫 Not Allowed:

• Paying yourself a salary or compensation from the LLC.
• Taking personal distributions directly from the LLC instead of through the IRA.

Key Rules for SDIRA Transactions

To maintain the tax-advantaged status of your SDIRA, follow these important rules:

✔ No Self-Dealing: You cannot personally benefit from SDIRA assets.
✔ No Transactions with Disqualified Persons: Avoid dealings with family members and related entities.
✔ All Transactions Must Be Passive: You cannot actively perform work on SDIRA owned investments.
✔ All Income & Expenses Must Flow Through the IRA: Payments, earnings, and investment costs must be handled by the IRA, not your personal funds.

Final Thoughts

A Self-Directed IRA provides greater investment flexibility, but it requires careful management to avoid prohibited transactions. If you are unsure whether a transaction is allowed, consult AET or a tax professional before proceeding.