Can my SDIRA invest with other partners, including myself?

A Self-Directed IRA (SDIRA) offers investors the flexibility to participate in a wide range of alternative investments, including partnerships, joint ventures, and co-investments. However, strict IRS rules govern these transactions, particularly when they involve the IRA owner or other disqualified persons. Understanding the regulations surrounding SDIRA partnerships is crucial to ensuring compliance and maintaining the tax-advantaged status of your account.

Investing with Other Partners

Your SDIRA can co-invest alongside other individuals, entities, or IRAs in various types of investments, such as:

• Real estate partnerships (e.g., multiple investors pooling funds to buy a property)
• Private companies or LLCs (e.g., forming a new business with other investors)
• Syndicated deals (e.g., investing in a private placement with other accredited investors)
• Joint ventures (JVs) (e.g., your IRA and another investor funding a single project)

As long as the partnership is structured correctly and does not violate IRS prohibited transaction rules, co-investing is allowed.

Can My SDIRA Invest with Me Personally?

No. Your SDIRA cannot invest with you personally or with other disqualified persons. This means your IRA cannot co-invest in a deal where you personally own an interest or hold control.

For example, your IRA cannot:
🚫 Buy a rental property with you personally as a co-owner.
🚫 Invest in an LLC where you or a disqualified person own 50% or more.
🚫 Loan money to yourself, spouse, or children as part of an investment.

Who Are Disqualified Persons?

The IRS prohibits your SDIRA from engaging in transactions with certain individuals or entities, including:

• You, the IRA owner
• Your spouse
• Your lineal ascendants or descendants (parents, children, grandchildren)
• The spouses of your children or grandchildren
• Any entity (business, trust, partnership) where you or a disqualified person own 50% or more
• Fiduciaries or service providers to your IRA

Investing alongside or entering into transactions with these individuals could trigger a prohibited transaction, resulting in severe tax consequences (more on this below).

Structuring an SDIRA Partnership Correctly

If you want to invest with non-disqualified persons, proper structuring is essential. Here are key guidelines:

1. Initial Investment Must Be Proportional

If your IRA partners with others, each investor must contribute funds proportionally at the start. The IRA and other investors cannot adjust ownership percentages later without violating prohibited transaction rules.

✅ Example of an Allowed Investment:

• Your IRA owns 50% of an investment, and an unrelated investor owns 50%.
• Both contribute funds proportionally and receive profits proportionally.

🚫 Prohibited Example:

• You personally fund a real estate investment, then later bring in your IRA as a co-owner.
• This is considered a self-dealing transaction, violating IRS rules.

2. No Personal Benefit from the Investment

If your IRA co-invests, you cannot personally benefit from the investment beyond the returns received by your IRA.

🚫 Prohibited Example:

• Your IRA invests in a vacation rental property, and you personally stay in it.
• Even if your IRA only owns a small percentage, this still violates IRS rules.

3. Separate Banking & Accounting

All SDIRA-related funds must be handled separately from personal funds. This means:

• Investment income must go directly into the IRA.
• Expenses must be paid proportionally by all co-investors, including the IRA.
• No commingling of personal and IRA funds.

🚫 Prohibited Example:

• You personally cover an expense for an IRA-owned investment and get reimbursed later.

✅ Correct Approach:

• The IRA pays only its share of expenses directly from the IRA account.

What Happens If You Violate the Rules?

If your SDIRA engages in a prohibited transaction, the IRS may distribute the entire IRA, causing:

❌ Immediate taxation of the entire account balance.
❌ Early withdrawal penalties (if under age 59½).
❌ Additional penalties and interest depending on the severity of the violation.

AET, as your custodian, may also treat the prohibited transaction as a distribution, removing the asset from your IRA.

Final Thoughts: Investing with Partners & Staying Compliant

✅ Your SDIRA can invest with other investors, including other IRAs, provided the investment is structured correctly.
❌ Your SDIRA cannot invest with you personally or other disqualified persons.
⚠ Proper titling, proportional funding, and strict separation of personal and IRA funds are critical to compliance.

If you’re unsure whether a specific partnership structure is allowed, consult with a tax professional or compliance expert before proceeding.

By following these rules, you can confidently invest with partners while protecting your SDIRA’s tax-advantaged status.