Q: I have a self-directed IRA and would like to invest in a private
company stock within it. My custodian however can't execute such
purchase due to their company's policy. I don't want to cash the IRA
myself to buy the stock because I will be taxed for the distribution of
such cash receipt. What should I do ? - John - Los Angeles, CA
A: Since your IRA is a self-directed one, you can instruct your custodian
to issue a check from you IRA, payable to the private company for the
purchase of the stock. To qualify the purchase of the private company
stocks as a tax-free IRA investment, you have to adhere to the following:
- The check must be issued directly to the privately held company
you are going to buy the stocks from. Tell your custodian
specifically that this is not a distribution and he / she should not
prepare any "Distribution Request Form" and should not issue
1099-R. Distribution is defined as "money directly distributed to
you and you can have full title and right to spend that money
however you want." Please refer to the Tax Court Ruling for the
definition of IRA distribution.
- Your custodian should mail the check to the privately held
company directly if he / she can. If not, instruct the custodian to
mail the check to a broker who can purchase the stock on your
IRA's behalf. You are advised not to have any personal contact
with the check.
- Make sure that the stock certificates have your IRA as the owner,
not you personally. Instruct the privately held company to send
the stock certificates to the custodian of your IRA account right
after the transaction is concluded.
- Follow up with the privately held company and the custodian to
ensure that the custodian has the IRA owned stock certificates in
custody within the 60-days limitation period right after the
purchase.
The above information is meant for discussion purpose only and is relevant limited
to the enquirer's unique situation. It is not meant to substitute any formal
consultation with your tax advisor and CPAs. We are not and will not be
responsible for any negative outcome that derives from your sole reliance on the
above information without an in-depth consultation with our firm.
