Do's and Don'ts of IRA Investing
by Robert Carlson
Individual retirement arrangements (IRAs) are supposed to be simple and flexible investment vehicles, but their investment rules are more complicated and restrictive than many investors realize.
When you invest only in publicly traded stocks, bonds and mutual funds, there are no special issues. However, the tax law prohibits or penalizes some other investments by IRAs. Though part of the law for a long time, these pitfalls are becoming more important as the investment options available to mainstream investors increase and as investors are attracted more to “hard assets” and other non-traditional investments.
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The restrictions on IRA investments are not well-known and, as a result, investors often stumble into penalties or other problems. The most common mistake is using a retirement account to hold an investment that falls under one of three categories: prohibited investments, taxable investments and transactions, and prohibited transactions.
The prohibited investment rules apply to IRAs and also to other self-directed accounts, such as 401(k)s. The main category of prohibited investments is “collectibles” as defined in Section 408(m) of the Internal Revenue Code.
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Discussion
I DO NOT GET INVOLVED IN ANY OF THE PROHIBITION SITUATIONS
MENTIONED ABOVE. HENCE, I PAY TAX ON ANY WITH WITHDRAWALS
I MAKE, RIGHT?
I AM WORKING ON A POSSIBLE TRANSFER TO MY ROTH. ANY ADVICE?
WHY ARE THERE NO LIVE MEETINGS IN JACKSONVILLE? WE ARE A LARGE
CITY AND I NEVER SEE FLORIDA, NORTH EAST IN YOUR MATERIAL.
I AM SPENDING MORE TIME WITH AAII THE OLDER I GET.
THANKS, FRANK CERAVOLO
posted over 2 years ago by Frank from Florida
Frank, why don't you start an AAII club? It's not difficult. Just contact HQ and set it up. Also, you should know that USING CAPS is the online equivalent of SHOUTING!!!!!!
Bruce
posted over 2 years ago by Bruce from Florida
Author discusses MLP's but does not discuss ETF MLP's. Question is ETF MLP considered similar to Gold ETF's
Dick
posted over 2 years ago by Dick from Texas
What about REIT's? Are they considered pass-through entities?
posted over 2 years ago by David from Texas
A serious omission from this article is mention of the inability to "short" stocks using funds from a self directed IRA. This is a ludicrous rule and should be amended. Numerous are the times that I could have made money when my research showed that a company is in trouble. A perfect example is the days long drama regarding Netflix that had only one inevitable conclusion, a severe and prolonged drop in price.
posted about 1 year ago by Ed from Maryland
How does this site know my name.. when I have never used it Shirley
posted about 1 year ago by Shirley surber from Virginia
Shirley, you browser may have its auto-fill option turned on, which remembers and inserts your information onto websites. Depending your browser, you can turn off the feature by clicking on "tools" or "options" and looking for the specific box to uncheck. - Charles Rotblut, AAII
posted about 1 year ago by Charles from Illinois
Are the "distributions" from MPLs subject to UBIT or is the "pro-rata income" from MLPs subject to the excise tax? Distributions are frequently made that are more than the income reported.
posted about 1 year ago by Dennis from Virginia
Dennis - The MLP will provide you with a Form K-1 that classifies what is included in the distribution. -Charles Rotblut
posted about 1 year ago by Charles from Illinois
I hold some REITs (CIM, AGNC, NLY), as do many others I'm sure. The previous question wasn't answered. Does REIT income to the IRA fall under UBTI?
And how about Royalty Trust income, like HGT?
posted about 1 year ago by Timothy from Oregon
Wonder if this means it would be a good idea Not to invest in AMLP, one of the ETFs in the AAII Model ETF portfolio, inside of a Roth to avoid potential tax problems?
posted about 1 year ago by John from Nebraska
Can someone comment on the subject of "foreign taxes withheld from income (dividends and interest) received from international investments in an IRA.
Specifically, I hold a Canadian common stock in my IRA, and they withold 15% for Canadian taxes from my dividends. Can I deduct these as an offset to U.S. taxes on my Form 1040 tax return?
posted about 1 year ago by Robert from Illinois
Robert, my understanding is though Canada has an income tax treaty with the U.S., t you cannot deduct foreign taxes charged on an investment held in an IRA. -Charles Rotblut
posted about 1 year ago by Charles from Illinois
Dear Mr. Carlson:
May an IRA own one's business?
There have been several articles (in NYT, WSJ, periodicals) featuring this as an overlooked and worthwhile IRA investment, mostly because it obviates financial market risk and allows the individual IRA owner to be in total control and with low expense.
One example I recall (NYT) is that of a fisherman whose physical capital (boats, bait, nets, tackle, etc.) and business earnings beyond the salary he paid himself were in entirety held in a self-directed IRA.
My accountant maintains that this is not self-dealing as long as one is paid a salary by the business and as long as one does not withdraw any business earnings.
Thank you.
Rob Karlin
posted about 1 year ago by Robert from California
Robert - That gets into a complicated area of the tax code. If you are unsure about the advice your account is giving you, I would get a second opinion from another tax professional. -Charles Rotblut, AAII
posted about 1 year ago by Charles from Illinois
Why no answer on the REIT'S in an IRA?
Is there a problem with UBTI?
posted about 1 year ago by John from Missouri
REITs are different entities than MLPs, so the tax treatment is different. In general, REITs are not subject to UBTI, but there are exceptions such as a mortgage REIT that uses financings considered to be "taxable mortgage pools." If you have questions, consult a tax professional. -Charles Rotblut
posted about 1 year ago by Charles from Illinois
I would like to have coppied this article
but my xp computer will only handle up to the
number 8 version and this uses number 9
posted about 1 month ago by Leo Sibille from Louisiana
