^{_{Abbreviations}}

• IRA (Individual Retirement Agreement)
• SD IRA (Self Directed Individual Retirement Agreement)
  

What Congress Said:

In 1974, Congress passed the Employee Retirement Income Security Act (ERISA). That legislation created the rules that allow individuals to establish a trust fund for their retirement. The plan would be called an Individual Retirment Agreement (IRA).

The concept was simple. Individuals could establish their own retirement trusts; they could fund their trust by contributing money based on limits set by the Act. (Originally $1,500 per year, the limits have become more liberal since inception of the act.)

Contributions made to the fund are deductible in the year they are made. (Example; a person earning $50,000 a year makes a $1,000 contribution to their IRA.  They would deduct $1,000 by completing line 32 of their Federal Income Tax return (Form 1040) thus reducing their taxable income by $1,000 for the year.)  

Earnings made from investments or savings held inside the IRA could accumulate tax free as long as they remained inside the IRA. Withdrawals from a traditional IRA are considered a “taxable event”. The owner of the IRA pays Income Tax on the amount they withdraw.  

As Congress intended these accounts to be for retirement, they set the minimum age for withdrawal at 59 1/2. Withdrawals made prior to age 59 ½ are considered premature withdrawals. A person who makes a premature withdrawal from their IRA must pay a tax penalty of 10% of the amount withdrawn. 

What Kind of Investments could be made in the IRA?

Although it may a bit of an oversimplification, it appears that it was the intent of Congress to allow IRA holders to put their money into anything that would be a reasonable investment for their retirement. There are a few restricted investments however, the restrictions are minimal and clearly spelled out. (See below).

IRA Investment Restrictions:

1. IRA Funds may not be used to buy Life Insurance
2. IRA Funds may not be used to buy “collectables” (such as art, wine, baseball cards, antique cars, etc.)
3. An IRA may not transact business with a “disqualified person”.
   

There is a complete definition of who are “disqualified persons” on this web site. For now, let’s simply say that disqualified persons include the IRA owner, their spouse, their family and any financial professionals who represent the owner or the IRA. The goal is that the funds invested are for the IRA owner’s future and any current benefit those funds bring to the IRA owner or their family may disqualify the IRA..

For example:

1. Your IRA cannot buy a house that you will live in. Even though buying a house may be a good investment, the fact that you live in the house means you are receiving a current benefit.
2. Your IRA cannot buy assets from you. 
3. You may not use your IRA as security for a loan made to you.  
   

The same restrictions apply to all disqualified persons.

Who are disqualified persons?

• Any fiduciaries working on this account such as the account custodian and sponsor

IT IS IMPORTANT TO NOTICE THAT CONGRESS PLACED VERY FEW RESTRICTIONS ON HOW WE INVEST OUR FUNDS INSIDE OUR IRA.

The restrictions that most investors have dealt with over the years have been placed on our IRA by banks, brokers or investment companies and not by Congress or the IRS.

Why a Self Directed IRA

A Self Directed IRA (SD IRA) is just as the name implies. A SELF DIRECTED IRA PLACES NO RESTRICTIONS (other than the few restrictions placed on IRA’s by Congress or the IRS) on what investments may be made inside a Self Directed IRA.    

It is interesting when we realize that fact that ALL IRA’S ARE SELF DIRECTED IRA’S UNTIL A BANK, MUTUAL FUND, OR BROKERAGE FIRM PLACES ITS OWN RESTRICTIONS ON THE INVESTOR. By opening an IRA with The IRA Club you are free to make any reasonable investment for your retirement that you like inside your IRA. There are no investment restrictions beyond the reasonable restrictions placed on all IRA’s by Congress and the IRS and the Department of Labor.