7 Frequently Asked Questions About Self-Directed IRA Distributions
A self-directed IRA is unique in having a different transaction model, and opening up the possibility to invest in to a diverse range of assets such as real estate, private placements, and more.
When it comes to the basic concepts of account administration, however, a self-directed IRA is no different from a conventional IRA. This applies to the concept of taking distributions from your account.
Distributions from a self-directed IRA are subject to all the same timelines and rules as any other IRA. That being said, there are some differences in the actual process of taking distributions.
Here are 7 frequently asked questions about IRA distributions.
1. When Can I Start Taking Distributions from My IRA?
You may make a distribution from your self-directed IRA once you reach 59½ years old. An early withdrawal penalty may apply if you take a distribution before you reach age 59½—with some exceptions.
A Traditional IRA distribution is taxed as ordinary income for the tax year of the distribution.
With a Roth IRA, qualified distributions are tax free.
A Roth distribution is qualified if it was made after a 5-year period, beginning with the first taxable year a contribution into the account was made, and if the distribution was either:
- made after you were 59 ½ years old, or
- made because of disability, or
- made to a beneficiary because of death or,
- one that meets the requirements under first home exception.
If your Roth distribution isn’t qualified, it may be subject to a 10% early withdrawal penalty, along with ordinary income tax on growth above the originally contributed or converted basis
2. Am I Required to Take Distributions From My IRA?
Yes. You are required to take distributions from your tax-deferred IRA if you’re over age 72. (For those born before June 1st, 1949, the age limit to begin Required Minimum Distribution is 70 1/2).
You’re also required to take distributions from a non-spousal inherited IRA. Your options and the rules regarding your required distributions are dependent on a few different factors, like the account type of your non-spousal inherited IRA. Learn more about taking a distribution from your inherited IRA»
Failure to take Required Minimum Distributions (RMD’s) can result in a penalty of 50% of the amount you were supposed to distribute.
There is no requirement to take distributions from your own Roth IRA. An inherited Roth IRA is subject to the same RMD requirements as a tax-deferred account.
3. How Do I Take Distributions From My IRA?
To maintain proper IRS reporting, you don’t get to write yourself a check from the IRA-owned LLC. Funds must be transferred from the LLC back to the IRA, which is essentially like “selling shares of a fund”.
You then request the distribution from the IRA custodian. They’ll issue funds to you, complete the necessary reporting to the IRS, and withhold state and federal taxes if you request for them to do so.
4. How Long Does it Take to See my Distribution?
Expect 3-5 business days for processing by the custodian. With allowance for mailing funds from the LLC to the IRA and from the IRA to you, the total process can take 2-3 weeks.
The process can be expedited by using wires on one or both fund transfers, but this will increase the cost.
5. Is There a Cost for Taking a Distribution?
Yes, expect total fees in the range of $45 to $75 depending on your custodian and whether checks or wires are used to transmit funds.
The custodian is documenting the sale of ownership interest in the LLC, as well as processing the distribution to you.
It is generally better to take just one or two distributions per year—monthly distributions could get expensive.
6. How Do I Manage Required Minimum Distributions?
Your IRA custodian will calculate the amount you are required to distribute from your account and provide you with this value. It is important to verify the accuracy of the custodian’s calculations, which may be best accomplished by having your CPA review the account.
The RMD amount for each IRA you have will be calculated independently, based on the account value and the appropriate life-expectancy table provided by the IRS. Which table is used and what age factor will apply may vary depending on whether you are dealing with your own account or one that has been inherited.
If you have more than one IRA you can be flexible in how you source your distributions. You don’t have to take the required amount from each individual account separately. So long as you distribute the total amount required across all IRA accounts, you have met your obligation. This allows you to choose which assets to liquidate and which to keep invested, and thereby best maintain the performance of your overall portfolio.
Additionally, strategies like consolidating your IRA accounts and automating your RMDs can also help take some of the confusion out of the distribution process, which brings us to our final FAQ:
7. Can I Automate the Distribution Process?
Automating your distribution process may be possible, depending on your LLC banking relationship.
You would need to automate the liquidation of cash from the LLC back to the IRA. This will require submission of a deposit form, so at least this one manual step will be required.
You can schedule periodic distributions from the IRA with your custodian.
Speak to a trusted advisor if you have any questions or concerns about your IRA distribution strategy. You may also want to discuss how you can manage your required minimum distributions in a way that is most beneficial to your specific financial goals.
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Quick answers to common questions
We’ll take you through a simple, step by step process designed to put your investment future into your own hands…immediately. Everything is handled on a turn-key basis. You take 100% control of your Retirement funds legally and without a taxable distribution.
YES! In 1974, Congress passed the Employee Retirement Income Security Act (ERISA) making IRA, 401(k) and other retirement plans possible. Only two types of investments are excluded under ERISA and IRS Codes: Life Insurance Contracts and Collectibles (art, jewelry, etc.). Everything else is fair game. IRS CodeSec. 401 IRC 408(a) (3)
It’s actually pretty simple. Early on, regulators let the securities industry take the lead in educating the public about retirement accounts. Naturally, brokers and banks promoted stocks, bonds, and mutual funds—giving the impression that those were the only allowed investments. That was never true... and still isn’t. You can probably guess why they kept the rest under wraps.
It is possible to use funds from most types of retirement accounts:
- Traditional IRA
- Roth IRA
- SEP IRA
- SIMPLE IRA
- Keogh
- 401(k)
- 403(b)
- Profit Sharing Plans
- Qualified Annuities
- Money Purchase Plans
- and many more.
It must be noted that most employer sponsored plans such as a 401(k) will not allow you to roll youraccount into a new Self-Directed IRA plan while you are still employed. However, some employers will allow you to roll a portion of your funds. The only way to be completely sure whether your funds are eligible for a rollover is by contacting your current 401(k) provider.
A Solo 401(k) requires a sponsoring employer in the format of an owner-only business. If you have a for-profit business activity – whether as your main income or as a side venture – and have no full-time employees other than potentially your spouse, your business may qualify. The business may be a sole-proprietorship, LLC, corporation or other entity type.
A self-directed retirement plan is a type of IRA or 401(k) that gives you greater control over how your retirement funds are invested. Unlike traditional accounts held at banks or brokerage firms that limit you to stocks, bonds, and mutual funds, self-directed plans allow you to invest in a wide range of alternative assets including real estate, private businesses, precious metals, cryptocurrency, and more.
These plans still follow the same IRS rules and maintain the same tax-deferred or tax-free benefits as conventional retirement accounts. The difference is simply in how and where you choose to invest.
No. Moving to a self-directed IRA or Solo 401(k) does not trigger any taxes, as long as your funds are eligible for rollover.
Self-directed retirement plans maintain the same tax-advantaged status as traditional plans offered by banks or brokerage firms. The key difference is flexibility—our plans are designed to give you greater control and allow for a wider range of alternative investments beyond stocks, bonds, and mutual funds.
A prohibited transaction is any action between your retirement plan and a disqualified person that violates IRS rules and can lead to serious tax consequences. Under IRS Code 4975(c)(1), prohibited transactions include:
- Selling or leasing property between your plan and a disqualified person Example: Your IRA cannot purchase a property you already own.
- Lending money or extending credit between the plan and a disqualified person Example: You cannot personally guarantee a loan your IRA uses to buy real estate.
- Providing goods or services between your plan and a disqualified person Example: You can’t use your personal furniture to furnish a rental property owned by your IRA.
- Using plan income or assets for the benefit of a disqualified person Example: Your IRA cannot buy a vacation home that you or your family use.
- Self-dealing by a fiduciary (using plan assets for their own benefit) Example: Your CPA shouldn't loan your IRA money if they’re advising the plan.
- Receiving personal benefit from a deal involving your IRA's assets Example: You can’t pay yourself from profits your IRA earns on a rental.
If a transaction doesn’t clearly fall within the allowed guidelines, the IRS or Department of Labor may review the situation to determine if it qualifies as a prohibited transaction.
Disqualified persons are individuals or entities that are prohibited from engaging in certain transactions with your IRA or 401(k). Doing so could trigger a prohibited transaction, which may result in taxes and penalties.
Here’s who is considered a disqualified person:
- You (the account holder)
- Your spouse
- Your parents, grandparents, and other ancestors
- Your children, grandchildren, and their spouses
- Any advisor or fiduciary to the plan
- Any business or entity owned 50% or more by you or another disqualified person, or where you have decision-making authority
These rules exist to prevent self-dealing and ensure your retirement plan remains in compliance with IRS regulations.
(Reference: IRC 4975)
Understanding and following these rules can be tricky, but it’s very doable. The best way to stay compliant is to work with professionals who specialize in self-directed retirement plans. They can help you navigate IRS guidelines and avoid prohibited transactions.
If an IRA holder is found to have engaged in a prohibited transaction with IRA funds, it will result in a distribution of the IRA. The taxes and penalties are severe and are applicable to all of the IRA’s assets on the first day of the year in which the prohibited transaction occurred.
Yes. While self-directed retirement plans allow for a wide range of investments, there are a few important restrictions.
You cannot invest in collectibles or life insurance contracts, and you must avoid prohibited transactions—activities that benefit you personally rather than the retirement plan. These include things like buying or selling property to yourself or family members, using plan assets for personal gain, or self-dealing in any way.
Violating these rules could cause your entire IRA to lose its tax-advantaged status. To protect your account, it’s essential to work with professionals who understand IRS regulations and can help you stay compliant.
This is a common misconception. In many cases, professionals may simply be unfamiliar with self-directed retirement plans, as they fall outside their usual scope of work. CPAs and tax preparers are trained to file taxes, not necessarily to advise on alternative retirement strategies. Financial advisors and brokers often work for firms that focus on traditional investments like stocks and mutual funds—and may not benefit from or support alternative options like real estate or private lending.
Self-directed retirement investing is legal under IRS rules—but like any specialized area, it requires working with professionals who understand how it works.
The IRS has rules in place to make sure your IRA is used only for the exclusive benefit of the retirement account—not for personal gain or to help family members. These rules can get complicated because there are many ways a conflict of interest can occur, even unintentionally.
For example, if your IRA buys a house and rents it to your mother, you might be reluctant to evict her if she stops paying rent. That emotional connection creates a conflict between what’s best for your IRA and your personal relationships, something the IRS aims to prevent.
These rules help ensure your retirement account stays compliant and protected. (See IRC 408)
Yes. Most tax-deferred retirement accounts—such as Traditional IRAs, old 401(k)s, 403(b)s, and TSPs—can be rolled over into a self-directed IRA or Solo 401(k), depending on your eligibility. Roth IRAs cannot be rolled into these accounts.
You can contribute directly from earned income, subject to annual IRS contribution limits. The method and amount depend on the type of plan you have (e.g., Solo 401(k) vs. IRA).
To take a distribution, you'll request funds through your custodian or plan administrator. Distributions may be taxable depending on your account type and age. Early withdrawals may be subject to penalties.
For 2025, the Solo 401(k) max contribution limit is $81,250 if age 60-63, $77,500 if age 50-59 or 69+, and $70,000 if under 50. Traditional and Roth IRAs have a limit of $7,000 ($8,000 if age 50+). Limits are subject to IRS adjustments.
Yes. IRA contributions are typically due by your personal tax filing deadline (e.g., April 15). Solo 401(k) contributions follow your business tax filing deadline, including extensions.
IRS reporting requirements vary depending on the type of self-directed retirement plan you have. Here’s a quick breakdown of what you need to know
Please note: Our team can help you understand what’s required for your specific account, but we don’t provide tax or legal advice. We always recommend working with a qualified tax professional to ensure full IRS compliance.
Self-Directed IRA (Traditional or Roth)
- Form 5498 – Filed by your custodian each year to report contributions, rollovers, and the fair market value (FMV) of your account.
- Form 1099-R – Issued if you take a distribution or move funds out of your IRA.
- Annual Valuation – You'll need to provide updated FMV for any alternative assets held in the account, such as real estate or private placements.
Solo 401(k)
- Form 5500-EZ – Required if your plan assets exceed $250,000 as of year-end. Must be filed annually by the plan participant.
- Form 1099-R – Required if you take a distribution or roll funds out of the plan.
- Contribution Tracking – Keep records of employee and employer contributions. These are not filed with the IRS but may be needed for tax reporting or audits.
SEP IRA
- Form 5498 – Filed by your custodian to report contributions and FMV.
- Form 1099-R – Filed by your custodian. Issued for any distributions.
- Employer Contributions – Must be reported on your business tax return (and on employee W-2s, if applicable).
Health Savings Account (HSA)
- Form 5498-SA – Filed by your HSA custodian to report contributions.
- Form 1099-SA – Filed by your HAS custodian. Issued for any distributions.
- Form 8889 – Must be included with your personal tax return to report contributions, distributions, and how funds were used.
