FAQs about Self-directed IRAs
Sometimes you can learn a lot from what other people have asked.
We've compiled a list of questions we get a lot. See if this helps you as you learn about buying alternative assets in your retirement account.
Or call us at (239) 333-1032. Midland Trust is here to help!
Making an Investment
What Types of Assets Can I Hold in My IRA?
Self-directed IRAs can invest in alternative investments such as real estate, futures, forex, private lending, crowdfunding, precious metals, private equity, hedge funds, and more. A self-directed IRA cannot invest in life insurance products or collectibles. These assets include works of art, rugs, or antiques.
What is a Prohibited Transaction?
Some types of self-directed transactions violate your IRA's basic intent. These transactions may subject your account to risks and penalties. Your retirement plan is not to benefit you before you reach retirement age. Actions providing immediate financial gain to the account holder or other disqualified persons/parties are not allowed. Examples include:
- Borrowing money from your IRA
- Selling, exchanging, or leasing personally owned property to your IRA
- Using your IRA as security for a loan
- Transferring plan income or assets to disqualified persons
- Lending IRA money to disqualified persons
- Extending credit on your IRA to disqualified persons
- Furnishing goods, services, or facilities to disqualified persons
- Allowing fiduciaries to obtain or use the plan’s income or assets for their interest
Download our Prohibited Transactions Guide for more details.
Who Are Disqualified Parties?
Disqualified Parties are certain people and/or entities with which your IRA cannot do business. IRC Section 4975 outlines these parties. For a list of Disqualified Parties, please view our Prohibited Transactions Guide.
Does Midland Advise?
Midland does not advise clients. Midland has no responsibility or involvement in selecting or evaluating any investment. Nothing contained on our website shall be construed as investment, legal, tax, or financial advice or as a guarantee, endorsement, or certification of any investments. You will need to contact a CPA of Financial Adviser for any advice related to your IRA.
Who Completes Due Diligence on an Investment?
The client is solely responsible for completing the due diligence on any intended investment for their account. Midland IRA is not a fiduciary. Midland’s role as the administrator of self-directed retirement accounts is non-discretionary and/or administrative in nature. The account holder or his/her authorized representative must direct all investment transactions and choose the account’s investment(s). Midland has no responsibility or involvement in selecting or evaluating any investment. Nothing contained on our website shall be construed as investment, legal, tax, or financial advice or as a guarantee, endorsement, or certification of any investments.
What is the Typical Timeline for Completing an Investment?
The timeline for an investment can vary depending on several factors:
Method of funding the account
Third Parties involved
Please contact a member of our client services team at 239-333-1032 to discuss the estimated timeline details of your investment.
What Fees Does Midland Charge to Make an Investment?
Fees are charged on an annual basis based on the number of assets in your account or based on the total account value in addition to one-time fees related to processing an investment. Please view the Midland Fee Schedule for more details.
How Do I Let Midland Know When I Am Ready to Move Forward With an Investment?
Make an investment by logging onto Midland 360 and using the online buy feature. This feature allows you to input all relevant information for your specific investment and upload all documents required by Midland to administer the asset.
Accounting, Tax and Fee Questions
What is a Required Minimum Distribution (RMD)?
An RMD is the required amount of withdrawn funds from a pre-tax account once the account owner turns 72. RMDs are also required for inherited accounts. Traditional IRAs and 401(k)s are examples of a pre-tax account.
View real case studies in which Midland clients took in-kind distributions.
What is UBIT/UDFI?
Unrelated Business Income Tax (UBIT)
- Unrelated business income tax (UBIT) is income earned by a tax-exempt entity that isn't related to the tax-exempt purpose of the entity.
- An income-earning activity is considered to be unrelated if it involves a trade or business, is carried on regularly, and is not substantially related to helping the organization carry out its mission.
Unrelated Debt-Financed Income (UDFI)
- Unrelated Debt-Financed Income Tax (UDFI) is a tax that applies to gains from an asset received by an IRA. UDFI is derived from debt financing used to obtain the asset.
- If you use debt to acquire an asset within a tax-advantaged account (such as a self-directed IRA), you have to pay UDFI on a portion of your net income from that asset. If you use a non-recourse loan to fund your IRA's real estate purchase, you pay UDFI on that property's gains.
- Assume you buy a property worth $100,000 with $40,000 of financing in your self-directed IRA. In this example, 40% of the property is debt-financed. Consequently, 40% of all income from that property is directly attributable to that debt financing.
What is a 990-T Filing?
The tax due for UBIT is reported on IRS Form 990-T, and the rates are based on the current Trust Tax Rates. Trust tax rates accelerate faster than corporate and individual rates. The tax is calculated and paid annually. There is no tax on the first $1,000 of net income.
What Are the Contribution Limits?
There are different contribution limits depending on your account type and your age. You can view the limits on our IRA contribution limits page.
What Do My Midland Fees Cover?
Midland fees cover the administration of your IRA account(s). The annual fees associated with your account cover items such as tax reporting, account maintenance, custody of the asset on behalf of the IRA, and processing any incoming and outgoing funds. Additional one-time transaction fees may apply. View the Midland Fee Schedule for details.
What is a 5498?
IRS Form 5498 reports contributions and/or rollovers made to the IRA. Fair Market Valuation (FMV) is also reported on Form 5498. Midland files this form annually on or before May 31st. You are not required to file this form with your tax return. However, you can find it under the “Documents” tab of your Midland 360 portal.
What is a 1099-R?
Tax Form 1099 reports various types of income for a given tax year. Midland uses a 1099-R, reporting the distribution of funds from a retirement account. You can find your 1099-R under the "Documents" tab of your Midland 360 portal. This form is also mailed to any client who took a distribution no later than Jan 31st of the following tax year.