The most common non standard investment that is

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The most common non-standard investment that is typically held within a self-directed IRA is investment real estate. Some investors might also hold self-storage facilities and investments in franchises within a self-directed IRA. The catch is that all costs must be paid for using IRA assets. That includes any down payments, any monthly mortgage payments, any maintenance costs, or any property taxes. Investors must be careful to not co-mingle self-directed IRA assets with non-IRA assets, or they could end up with an IRS problem on their hands. Imagine a scenario where you work for 30 years to build up a 401(k), and then transfer it to an IRA which you then send to a non-standard self-directed custodian because you wanted to buy a self-storage facility. Two years later you find that vacancy rates are rising due to oversupply and your self-storage facility has lost value. This is not a guarantee with self-directed IRAs, but it is a risk. Lower valuations are exactly what we are seeing right now on self-storage units. This can be a great way of diversifying investment exposure into alternative asset classes. The investor will run into regulatory problems under two circumstances. First, if any expenses or investments are made in an asset held within a self-directed IRA, the investor will encounter problems with the IRS. The
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second area of issue is known as self-dealing , which is using the self-directed assets for personal gain and not retirement account gain. You might be thinking that the investor should be able to benefit personally from their own retirement account. While this logic is correct, the IRS is trying to prevent abuses, like a wealthy investor with a substantial IRA balance using a self-directed IRA to purchase their primary residence with tax-deferred money and then be able to sell the primary residence and escape the applicable capital gains rules for selling a primary residence. This is an example of a violation of the self-dealing rule associated with a self-directed IRA. Q: Why would an investor consider the extra steps to establish and self-monitor a self-directed IRA? A: A retirement saver might use a self-directed IRA to introduce alternative investments into their portfolio. They might want to own real estate directly rather than through a real estate investment trust (REIT) or perhaps a self-storage unit or an interest in a franchise. Q: A 49-year old retirement saver has decided to use a self-directed IRA to purchase a self-storage unit. There are 100 units in the facility and the owner uses one unit to store rental unit supplies and one to store the owner’s Porsche during the winter months. They sunk their entire IRA balance into the asset. A tree falls on one corner of the unit and does $10,000 worth of damage. The owner does not want to file an insurance claim, which would raise their insurance rates, so they simply write a check out of a personal checking account. Are there any issues with this scenario?
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