No, No, No, No….Prohibited Transactions and Disqualified Persons in Self-Directed IRAs Part II- The Taxation of Self-Directed IRAs
By Anthony Diosdi The appeal of investing retirement funds outside of the typical investments has driven a surge in the use of self-directed Individual Retirement Account (“IRA”) investment structures. Investments within self-directed IRAs frequently include real estate, closely held business entities, private loans, and can include any other investment that is not specifically prohibited by federal law. In my last blog, I discussed the legal implications of investing in a self-directed IRA. This blog I will discuss potential tax obligations and filing requirements associated with self-directed IRAs.Most individuals who fund a self-directed IRAs do not realize that funding such a structure may trigger tax obligations and filing requirements. Anyone considering funding a self-directed IRA must understand the term unrelated business taxable income (“UBTI”). If the self-directed IRA earns UBTI, the…