Written By: Bryan Ellis, CEO of SelfDirected.Org
The capital you’ve saved and built in your self-directed IRA is precious. For many, it’s the sum of your blood, sweat and tears over decades of a work and represents the payoff for missed little-league games, late nights at the office and more stress than anyone should have to bear.
For those reasons, job #1 of the wise self-directed investor is to protect your capital at all times. Protection first, growth second.
That’s why you might be inclined to think that you should give extra weight to anything actually approved by the IRS as an investment for your IRA… right?
Wrong. If the IRS has approved an investment you’re considering, run away! Here’s why:
That banner is taken directly from the header of a recent notice published by the IRS itself. There is nothing ambiguous about this: The IRS Does Not Approve IRA Investments.
If The IRS Doesn’t Approve Investments, How Do We Know What’s IRA-Compatible?
You’ll likely never see a memo or notice from the IRS stipulating their approval of any investment. To do so would be foolish for them, both legally and from their perspective as tax collectors.
Instead, what you’ll see is notices and clarifications about assets that are prohibited for IRA’s. That list includes, at a minimum, life insurance and collectibles.
Life insurance is rather simple. But “collectibles” is a vague concept. For that reason, the IRS occasionally provides further guidance on the definition of that term.
For example, coins have long been considered to be collectibles and therefore prohibited. But the advent of Bitcoin prompted the IRS to issue a notice indicating that Bitcoin is not categorized as a coin for tax purposes, and is thus not prohibited as a collectible. That opened the door for self-directed IRA custodians to allow their clients to begin investing in Bitcoin.
What does all of this mean? Where IRA investments are concerned, the only dispositive comments you’ll see from the IRS concern assets which cannot be bought or actions which cannot be taken. You’ll never see explicit authorization from them for a particular type of asset, strategy or application of IRA’s.
The Lack Of A Prohibition Doesn’t Mean An Endorsement
In performing some research for a recent article about self-directed IRA’s I wrote for Forbes, I spoke with an executive at a new self-directed IRA company that focuses rather exclusively on cryptocurrency investments through IRA’s.
This company’s website blatantly makes the claim that they offer an “IRS-approved” investment.
When I asked him about this, he indicated that they believe the lack of an express prohibition for their investments equates to an implicit approval by the IRS.
Clearly, the IRS doesn’t agree with this.
The Real Problem With Claims Of IRS Approval
If you think about it, the issue with someone claiming to have IRS approval for their investment or their strategy is that they are willing to, at the very least, stretch the truth.
Is that the type of person or organization in whom you should trust your hallowed retirement funds?
Me either.
Remember: Protection first, growth second.
