Do You Need a CPA for Your Self-Directed IRA?
As tax season rolls around each year, we typically get a lot of questions about tax filing requirements and where to find a CPA who can help.
The simple answer is that most self-directed IRA and Solo 401(k) investors will not have any April tax filing obligations.
But does that mean you don’t need a CPA on your team? The answer is, “it depends”.
Let’s take a look at tax matters associated with a self-directed retirement plan and where you might want some guidance.
Tax Filings Are Not Normally Required
A self-directed IRA is still an IRA. So, if an IRA at Fidelity or E*Trade does not have to file a tax return, neither does a self-directed IRA, right? For the most part, that is true.
The only tax implications normally associated with an IRA are the ability to take a deduction for any contributions you make in a given tax year or the need to report as taxable income a distribution to yourself from a tax-deferred IRA. In either case, the reporting is done on your personal tax return.
Likewise, with a Solo 401(k) any contributions or distributions are reported on your personal or business tax return, and the plan does not have its own return to file in April.
Unlike a conventional IRA invested solely in stocks, funds, and other publicly traded financial products, a self-directed plan can invest in ways that do produce some taxable income.
Tax On Business Activities
When a tax-exempt entity like an IRA, 401(k), church, non-profit organization, etc. engages in a trade or business separate from its specifically exempted mission, the income from that business is taxable as Unrelated Business Taxable Income (UBTI).
Investments that can create UBTI include:
- Repeated flipping or wholesaling of houses
- Real estate development for immediate sale
- Hotels and some short-term rentals
- Income from an operating business like a restaurant, car wash, retail store, etc., if the business is not formed as a subchapter C corporation.
- Cryptocurrency Mining or Staking
Basically, if an activity would be considered earned income or regular income in the after-tax world, it probably generates UBTI for a retirement plan.
Passive investments that generate interest, dividends, royalties, rent from real property or capital gains do not create UBTI.
Tax On Debt-Financed Investments
An IRA or 401(k) investment that is debt-financed can also produce taxable Unrelated Debt-Financed Income (UDFI). When mortgage financing or other debt instruments are used, the portion of the income attributed to the non-plan funds that were borrowed is deemed taxable.
A Solo 401(k) is exempted from tax on UDFI when the debt is associated with the acquisition of real property.
990-T Trust Returns
If a plan creates taxable UDFI or UBTI, then a 990-T Exempt Organization Business Income Tax Return must be filed.
There can also be a state tax that parallels the federal return, depending on the state where income is produced.
When your plan has a need to file, then you will need to have a CPA on your team to assist you. Neither Safeguard Advisors nor your IRA custodian can file this return on your behalf.
990-T returns are due April 15th. If taxable amount will exceed $500, quarterly estimated payments may be required.
The 990-T must be filed electronically starting with the 2021 tax year.
Solo 401(k) 5500-EZ Filings
If you operate a Solo 401(k) and your plan value exceeds $250K in any given year, then the plan must file informational return 5500-EZ.
The return is due by the last business day of July for the prior tax year.
The return is simple, and includes some high-level numbers for the plan such as:
- Beginning of year balance
- End of year balance
- The total of new contributions made to the plan
- The total of distributions taken from the plan
- The total amount of any rollovers into to the plan
- Any outstanding participant loan balances
Many investors will choose to file themselves. Often times it can be worthwhile to have a CPA do the filing, especially since electronic filing is required starting with the 2020 tax year.
What Kind of CPA Do You Need?
Not all CPAs are familiar with the 990-T return. If you have a need to file, you will want to seek out someone who has expertise with this return type at both the federal and state level.
You do not need an “IRA Specialist” tax professional. They are few and far between, and tend to charge a premium as specialists. Unless you are engaging in very complex investments with your plan, this level of expertise is not necessary.
All tax-exempt entities are subject to tax on UBTI and UDFI. So, any CPA who works with non-profits, churches, hospitals, etc. should be able to help you.
If your CPA cannot help, ask them if they know someone who can. If not, just perform an internet search locally for “CPA + Non-Profit” or “CPA + 990-T”.
It is important to remember that this filing is entirely separate from your personal return. So, if your retirement plan needs a different CPA than you, that is OK.
Other Reasons You May Want a CPA
Even if your plan investments do not create a need for tax filings, there may be reasons to have a CPA on your team.
If you run a business and sponsor a Solo 401(k), you will want a professional to help you strategize around making contributions to your plan, and to help with calculating how much you can contribute based on your income and business tax structure.
CPAs are not just for help with tax filings. A good CPA can be a business coach, financial strategist, or a second set of eyes to perform diligence on an investment opportunity you may be considering. It can also make sense to discuss estate planning matters with your CPA if they are qualified in that area. Any time you can add meaningful guidance to your team, that can be valuable.
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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.
