In general, the Internal Revenue Code does not describe what a Self Directed IRA can invest in, only what it cannot invest in. Internal Revenue Code Sections 408 & 4975 prohibits Disqualified Persons from engaging in certain type of transactions. The purpose of these rules is to encourage the use of IRAs for accumulation of retirement savings and to prohibit those in control of IRAs from taking advantage of the tax benefits for their personal account.
Pursuant to Internal Revenue Code Section 4975, an IRA is prohibited from engaging in certain types of transactions. The types of prohibited transactions can be best understood by dividing them into three categories: Direct Prohibited Transactions, Self-Dealing Prohibited Transactions, and Conflict of Interest Prohibited Transactions.
Internal Revenue Code Section 4975(c)(1)(B) covers the rules relating to using a credit card with a self-directed IRA LLC. The section restricts the direct or indirect lending of money or other extension of credit between an IRA and a “disqualified person. In other words, an IRA holder would not be able to use a credit card that is associated with a self-directed IRA LLC account because it involves the extension of credit or personal guarantee of the IRA holder. Because a credit card requires a personal guarantee, if the self-directed IRA LLC would acquire a credit card and the IRA holder was required to personal guarantee the card, that guarantee would trigger a violation of Internal Revenue Code Section 4975(c)(1)(B).
To learn more about the self-directed IRA LLC rules, please contact a tax expert at 800-472-0646.