How the SECURE Act Impacts Self-Directed IRAs
As part of the 2019 year-end domestic appropriations bill, a significant package of rule changes for IRA and 401(k) based retirement plans known as the Setting Every Community Up for retirement Enhancement Act (SECURE ACT) was included.
This act passed the House of Representatives in August of 2019, but stalled out in the Senate. It suddenly came back to life through inclusion in this must-pass spending bill.
As a result, some impactful changes to the way IRA plans operate have become law.
While the law makes changes in a range of areas related to self-directed IRA and 401(k) plans, we wanted to focus this article specifically on those changes that may affect holders of a self-directed IRA.
Age for Required Distributions Is now 72
The age at which one is required to start taking distributions from a tax-deferred IRA has been pushed back from 70½ to 72.
For those individuals who would choose to not take a distribution, this slight deferment of the start timing for Required Minimum Distributions (RMDs) is a bonus.
Perhaps the bigger benefit is simplicity, as it was somewhat complex to determine when the first date of required distributions would be on a half-year basis. Knowing the calendar year in which one turns 72 is pretty straightforward.
As with the current law, there is an option for when the first distribution must take place. You can take it by the end of the year when the taxpayer turns 72, or you can delay it until April 1 of the year following. This means that someone turning 72 in 2021 can delay taking their first distribution until April 1, 2022.
The first distribution will be taken using the age 72 life expectancy factor, even if delayed. When the first payment is delayed, you’re still required to take a distribution for the 73 year, so there could be two separate distribution events in the first year.
This change takes effect after December 31, 2019, with respect to individuals who turn 70 ½ after that date. People born before June 1, 1949, will still fall under the old rules.
Repeal of Maximum Age for IRA Contributions
The prohibition against making new contributions to a Traditional IRA after age 70½ was removed. This change allows individuals to continue making contributions to the IRA indefinitely if they continue to have earned income.
Considering that many people are living and working longer, this ability to continue to set money aside in a tax-sheltered IRA may provide a benefit for some savers.
Once one reaches age 72 and is required to start taking distributions, this ability to still contribute may soften the blow to some degree.
If you’re required to distribute $3,000 but can contribute $7,000, you still get a $4,000 net reduction taxable income.
Elimination of RMDs and “Stretch” Concept for Inherited IRAs
Probably the most significant change to IRA based plans in the new law surrounds requirements for distributions from non-spousal inherited IRAs.
Prior to the SECURE Act, an inheritor of an IRA could choose to take a full distribution of the account within a 5-year period or stretch distributions over their life expectancy with calculated required minimum distributions based on their age.
The ability to stretch an IRA over a longer term has been eliminated and replaced by a new 10-year rule. The entire inherited account must be emptied by the end of the 10th year following the year of inheritance. Failure to fully distribute the account results in a tax penalty of 50% the amount that should have been distributed.
This rule applies to any account inherited after December 31st, 2019 and will not impact existing non-spousal inherited IRA plans.
The following types of account beneficiaries are exempted from this requirement and are termed “Eligible Designated Beneficiaries”:
- Spouse
- Disabled beneficiaries (as defined in IRC Section 72(m)(7))
- Chronically Ill beneficiaries (as defined in IRC Section 7702B(c)(2))
- Individuals not more than 10 years younger than the decedent
- Certain minor children of the original account owner, but only until they reach the age of majority
For these Eligible Designated Beneficiaries, the old rules allowing for the use of a life expectancy based required minimum distribution apply.
$5,000 Early Distribution for Birth or Adoption
A new exception was created that allows for a small early distribution from an IRA without a 10% penalty in the case of a new child.
Within a 1-year period from the birth of a child or the adoption of a child under the age of 18, a distribution of up to $5,000 may be taken penalty free. Any normal taxable amount would still be owed.
If both parents have an IRA, each can take up to the $5,000 amount. This same type of distribution may be taken for each child born or adopted and is not a one-time exception like a first-time home purchase.
The unique thing about this exception is that in the future you can replace the distributed amount taken via this method. If you distributed $5,000 in 2021, you could in the future make an IRA contribution up to your allowable maximum as well as that $5,000, without it being considered an excess contribution.
How do These Changes Impact Investors?
The delay in a need to take RMDs will likely benefit many investors in a small way. Designing a portfolio that will meet the liquidity needs of RMDs is always a concern once someone is in their 60’s, and this delay will create a bit of extra flexibility.
The benefit from being able to continue to make contributions should be somewhat limited to a handful of investors still working and creating earned income into their seventies. This option will perhaps mitigate the impact of required distributions, but will not likely change how one chooses appropriate investment assets for their account.
The focus in these later years should still be principal security and production of consistent income capable of meeting the liquidity requirements of distributions.
The change in how inherited IRAs are treated is considerably more significant. With alternative asset investing, one is typically dealing with larger, less liquid assets such as properties, limited partnership interests, mortgage notes and the like.
Having a fixed date by which such assets need to be either liquidated or distributed in-kind to liquidate the entire account could be problematic. Those who are newly inheriting an IRA and considering making it self-directed will need to think carefully about asset selection and a timeline for taking distributions.
For those investors utilizing a self-directed IRA as part of a broader estate plan and a means to pass wealth to the next generations, a reconsideration of those strategies may be in order.
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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.
