Letter Re: Self directed IRA article

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Dear Hugh,

I’ve been following the blog for quite a while now, and have read more than one Self Directed IRA post. However, no one seems to address what happens when someone “withdraws” assets from such an account. In a typical tax deferred IRA, I pay no taxes on the money I put in, but do pay when I take it out. Leaving the whole Roth IRA issue aside, what happens if I buy property with my SD IRA and then become old enough to “withdraw” it? In other words, I know I cannot live on or use the land while it is an investment, but at age 59.5 I can begin to “use” the property, so what happens now? Is the entire property counted as “income” all at once? Will I be hammered with taxes based on rates at that time? If so, this might not be such a great tax-reduction strategy.

The same thing applies for precious metals. I would never be so foolish as to “buy” PMs and let someone else hold them, so let’s say I have my tiny collection of bullion gold or silver in my possession (I believe numismatic coins are not allowed, though I may be wrong)…what happens when I hit 59 and a half years old? Does all of it convert from the IRA to myself, all at once? If I was dumb enough to let someone hold it for me, do they mail me a round or two every month? How does this work?

I’m all for reducing taxes. The Lord knows it’s the biggest single expense in my life (and yours too, most likely…ever really, really looked at your monthly expenses?), but it seems like an SD IRA might be like drinking too much- you feel good right now, but you are only postponing a lot of unpleasantness until later. What are your thoughts, HJL?

HJL Responds: I saw the writing on the wall several years ago. I took the early tax hit on my retirement account and withdrew the entire amount. I used that money to start two businesses that give me some diversity. One business does well when the disposable income is tight; the other does well when it is looser. I found that I would rather have the money earning equity in something that I had control over rather than some account that I might lose access to during a crash. If the economy crashes, I have something to barter with.

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