Last Updated on January 30, 2020
IRA Financial’s Adam Bergman discusses whether or not you can gamble on sports using your retirement funds
Let’s preface this article by saying we’re not financial advisers nor do we offer advice on what you should invest in. We’re here to advise you on what investments (such as gambling) may or may not be allowed using your retirement funds. Further, we make sure your plan(s) adhere to all rules set forth by the IRS so you can enjoy the benefits of tax-deferred and/or tax-free investing.
With that said, we thought an interesting topic would be sports gambling within a retirement account, such as a Self-Directed IRA or Solo 401(k) plan. Is it permitted by the IRS? In short, yes, we believe it is an allowable investment for your retirement funds.
Is Sports Gambling Legal in the US?
Unlike marijuana, sports gambling is now federally legal in the United States. It’s up to each individual state to determine if you are allowed to gamble there. In fact, on May 8, 2019, Indiana became the 10th state to legalize sports gambling.
No longer do you need to find a backroom bookie to make your sporting wagers. However, you must be in a state that allows for gambling. Until recently, sports gambling has only been allowed (legally) in Nevada, specifically Las Vegas. Now, one-fifth of the country allows for legal sports gambling. There are still rules concerning college sports. For example, you could not bet on a NJ college to win the NCAA tournament.
Is Gambling a Permitted Investment Inside an IRA or 401(k)?
The IRS only lists what you cannot invest in with retirement account funds. Basically, you cannot invest in life insurance (although it is permitted with a 401(k) plan), collectibles (such as art) and one that’s made with a disqualified person. Obviously, sports gambling is not a collectible or life insurance. They key element here is the disqualified person rule. All investments made with retirement funds can only benefit the plan and not the owner of the plan. For example, you cannot buy a house with your self-directed IRA and live there. By living there, you are personally benefiting from the investment. Further, disqualified persons also include lineal ascendants and descendants and their spouses, such as parents, children and sons- and daughters-in law.
Therefore, as long as the IRA is the beneficiary of the investments, it’s technically allowed. Once the IRA is not receiving the benefits, there’s a chance the IRA becomes disqualified. If that happens, the IRA is immediately distributed to you, taxes must be paid and you no longer have the tax benefits of the plan. IRA Financial is here to make sure that does not happen to you.
How Might You Gamble with Retirement Funds?
Here’s a few scenarios where you may or may not be able to use your IRA or 401(k) to gamble:
- You have a buddy who’s an excellent gambler and want to stake him with funds from your IRA. You then receive a cut from his winnings. Under IRS rules, this should be allowed.
- You’re a Floridian who wants to bring his Checkbook Control Solo 401(k) to Vegas. You want to use the funds to play poker. This is probably not allowed if you factor in traveling, hotel stays and entertainment. If you’re using the Solo 401(k) funds for the trip, you might be considered benefiting from the plan.
- You live in NJ and have a DraftKings account. You want to use your Self-Directed IRA to gamble on daily fantasy sports and on football games. Since it’s legal to gamble on sports in NJ, this should also be permitted by the IRS. Any winnings would flow back in to the SDIRA. Therefore, the only benefit is the plan itself.
As we stated earlier, we’re not condoning sports gambling using retirement funds. We’re simply giving our opinion as to whether or not you can do so with retirement funds. One can argue that the Stock Market is a gamble as well. Listen to the podcast to hear Adam Bergman’s take on this interesting subject!