FAQ Category: Self-Directed Investments

No. This is potentially considered a prohibited transaction, per Internal Revenue Code 4975. You may not purchase a property or an interest in a property that is currently owned by any disqualified party. Per IRS Publication 590: disqualified parties include your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of a lineal descendant), and more.

You can purchase real estate directly through your IRA account, have real estate transferred from an existing IRA or roll it over from a qualified plan. It may also be acquired by your IRA account as a result of a foreclosure on a mortgage or deed of trust which is currently held within your IRA account.

Yes. Digital Trust will hold direct title to real property, in addition to interests in Limited Liability Companies (LLC) or Limited Partnerships (LP) that hold title to real property; notes secured by trust deeds/mortgages; and interests in Real Estate Investment Trusts (REITs).

This is where 50% or more of the entity will be owned by the Digital Trust IRA and other disqualified persons or family members.

Non-recourse loans are the only types of loans that are permitted to be utilized within a qualified account. Traditional mortgages use personal assets and accreditation as security for the loan.  Since personal assets cannot stand as security for the loan within a qualified account, the only recourse the bank has is to go after the property itself. Therefore, they typically will require a higher percentage of the cost of the property to be used as the down payment. Please consult your tax adviser about any Unrelated Debt Financed Income Tax (UDFI) that could arise due to obtaining a non-recourse loan.

More information can be found on IRS.gov, particularly their page on Unrelated Business Income Tax. Additionally, many tax advisors and CPAs will be able to assist in the determination and calculation of UBIT and UDFI owed on your retirement account’s investments.

Limited partnerships, limited liability companies and other entities that carry on an unrelated business or borrow funds to finance the acquisition of property may generate Unrelated Business Taxable Income (“UBTI”). UBTI is generally reported on Schedule K-1 issued by the entity. If the UBTI attributable to your account exceeds $1,000.00 for any taxable year, IRS Form 990-T must be filed along with the appropriate amount of tax, payable from your IRA Account. We do not monitor UBTI and does not prepare IRS Firm 990-T. If the tax is applicable, you must prepare or have prepared IRS Form 990-T and forward it to us along with written authorization to pay the tax from your account. If you are required to file IRS Form 990-T, you must apply for and utilize an Employer Identification Number (“EIN”). You may not use our EIN or your own Social Security Number. For more information on UBTI, please refer to IRS Publication 598 and/or consult your tax advisor.

No. This is not a service that Digital IRA provides. You will need to contact your attorney or tax advisor with respect to the entity’s formation.

The supporting documents needed to purchase an investment vary based on the investment being purchased. Types of documents required for each investment type are listed on our Direction of Investment Form listed on our Self-Directed Account Forms page.

As the custodian, we own the assets in each account for the benefit of (FBO) your individual account. This means that we execute all investment documents and all documents related to the sale of the asset. This titling also ensures that the IRS recognizes that you are not personally benefiting from the assets held in your account before retirement. This allows you to recognize any potential tax benefits for which you might be eligible.