A self-directed IRA (SDIRA), a retirement account you manage yourself, can open doors to alternative investments that match your risk tolerance and long-term plan. For busy healthcare professionals, that flexibility feels appealing, especially when traditional portfolios look crowded with the same picks. Still, SDIRAs come with strict rules, and one misstep can trigger taxes and penalties. Before you fund a deal, confirm that the account, the custodian, and the investment all fit within IRS requirements. Use this SDIRA compliance checklist before you invest.
Confirm Custodian and Account Details
Choose an SDIRA custodian that supports the asset type you want. Some custodians limit real estate, private placements, or precious metals, and some add review steps that slow funding. Verify titling requirements up front, since every contract and invoice must list the IRA as the buyer. Keep personal and IRA activity separate in every document and every payment.
Screen for Prohibited Transactions
Check the investment for prohibited transaction risk before you wire funds. The SDIRA cannot buy from, sell to, or provide a direct benefit to “disqualified persons,” a term the IRS uses for you, your spouse, certain family members, and entities you control. Watch for indirect benefits too, such as personal use of a property, discounted services, or side agreements that place value back in your hands.
Validate Funding and Payment Rules
Confirm how money will flow, then follow that path without exception. The IRA must pay expenses tied to IRA assets, and the IRA must receive income from those assets. Do not pay a bill personally and plan to reimburse yourself later. Do not deposit checks into personal accounts even for a day. These steps matter when you focus on protecting your retirement account over the long arc of your career.
Review UBIT and Leverage Exposure
Ask whether the investment could generate unrelated business taxable income (UBIT) or unrelated debt-financed income (UDFI). UBIT is a tax the IRS applies to certain income in otherwise tax-advantaged accounts, while UDFI applies to income from debt-financed investments. Operating businesses, certain funds, and leveraged real estate can trigger UBIT or UDFI. A deal can still make sense, but you need clarity on expected filings, cash reserves for taxes, and who will handle the reporting. Coordinate with a tax professional who understands SDIRAs, since general business tax experience may not translate.
Lock In Documentation and Ongoing Records
Collect offering documents, operating agreements, and valuation details before you commit. Confirm how annual fair market value updates will work, since custodians require them. Keep a clean file with invoices, contracts, K-1s, and correspondence. Tight records support compliance if questions come up later.
Invest With Confidence, Not Guesswork
SDIRA compliance checklist may feel tedious, but it protects your upside. When you verify structure and plan for rules, you can invest confidently and stay on track long term.
