Self-Directed IRA Investing: Fortune or Folly?

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The use of “self-directed IRAs” to invest in real estate, private equity, and other “nontraditional” assets has grown rapidly over the past 10 years – and so have the potentially significant legal and tax problems they can raise, including: (1) invalidation of the account (resulting in complete retroactive taxable distribution and IRS penalties); (2) current tax consequences to the IRA itself resulting from investments that are not automatically tax-deferred; (3) lack of liquidity and/or valuation mistakes causing required minimum distribution problems during the IRA owner’s life; and (4) post-death asset management and distribution challenges.  It is vital for professional advisors to understand these potential “landmines” before they occur and, at a minimum, provide their clients with general advice that can avert significant legal and tax problems down the road.

As “self-directed” retirement accounts continue to grow (in both size and importance to many Americans), a professional advisor can distinguish himself or herself from the crowd by understanding the unique issues that these accounts can create.  This knowledge can also avoid the all-to-common professional advice of “I don’t understand it, so don’t do it”, which can lead to distrust between the client and advisors and/or the outright loss of the relationship.

As a bonus, this presentation will also cover the Rollover as Business Start-Up (“ROBS”) (i.e., 401k-owned C-Corporation) structure and how it differs from self-directed IRAs and IRA-owned LLCs.  In addition, the Warren will touch on several recent legal changes that affect all types of IRAs, whether self-directed or not.

Educational Objectives:
• At a “high level”, attendees will leave with a general understanding of the self-directed IRA landscape and potential problems that their clients might face
• Specifically, attendees will leave with the ability to spot potential “prohibited transaction” problems (which can jeopardize a client’s entire retirement account)
• Attendees will understand that IRAs do not always grow “tax free”, but rather “UBTI” and “UDFI” can result in unexpected tax consequences, penalties, and decreased investment returns
• Attendees will learn about recent federal scrutiny (IRS, tax courts, etc.) of self-directed IRAs and get an “inside perspective” of what is likely to come in the future
• Attendees will learn about self-directed IRA complexities that can arise in the future, e.g., distribution planning, passing accounts at death (estate planning)

Who would benefit most from attending this program?
Certified Public Accountants (CPAs), attorneys (particularly those who practice in the areas of: estate planning, business/corporate, and real estate), financial advisors (particularly those that have clients who invest in or are interested in “alternative” / “non-traditional” asset classes with their retirement accounts).



Warren L. Baker, JD, LLM (Taxation), is a tax and estate attorney with Fairview Law Group, PS in Seattle, Washington.  Warren’s practice is focused on assisting clients in analyzing, structuring, and negotiating tax-efficient structures for complex investment and business transactions.  Warren’s primary practice areas include: self-directed IRA compliance, formation, & consulting and estate and trust planning.  Warren is a regular presenter and writer on several of the most cutting-edge tax law topics in the nation.