Adam Bergman

Can I Be an Officer of a Company My Self-Directed IRA Will Invest In?

Investing retirement funds in private businesses can be a powerful strategy. But it also raises important questions about control, prohibited transactions, and IRS compliance.

One of the most common questions we receive is simple:

Can I be an officer, director, or employee of a company that my IRA invests in?

The answer depends on understanding disqualified persons, prohibited transactions under Internal Revenue Code Section 4975, and how ownership percentages interact with control and benefit.

Let’s walk through it.

The Core Rule: Your IRA Must Never Personally Benefit You

The IRS prohibited transaction rules are built around one central principle:

Your IRA must operate for the exclusive benefit of your retirement account, not for your personal benefit.

If an IRA owner directly or indirectly benefits from an IRA investment, the tax-advantaged status of the IRA can be jeopardized. IRC § 4975 defines a prohibited transaction as any improper use of an IRA by the IRA owner, the beneficiary, or any other disqualified person.

Disqualified persons include:

• The IRA owner
• The owner’s spouse and certain family members
• Any entity in which disqualified persons own 50% or more of the equity, voting power, or profit interests

If your IRA makes an investment that improperly benefits you, such as a sale, lease, loan, or services provided to or from the IRA, that is a prohibited transaction. The result can be immediate taxation and loss of IRA status.

The 50% Rule and Business Investments

One of the key guidelines in prohibited transaction analysis is the 50% ownership rule. If you personally, or together with other disqualified persons, own 50% or more of a business, that business is considered a disqualified person with respect to your IRA.

If your IRA invests in a company where you and other disqualified persons own 50% or more, the company itself becomes a disqualified person. In that situation:

• An IRA investment in the company would be a prohibited transaction.
• Personal involvement as an officer or director would significantly increase prohibited transaction risk.

However, when ownership remains below the 50% threshold, there is substantially more flexibility.

When You Can Be an Officer or Director

The IRS has never issued a definitive rule that categorically prohibits an IRA owner from serving as an officer or director of a company owned by the IRA, provided certain criteria are satisfied. Various U.S. Department of Labor advisory opinions suggest that small ownership interests and non-controlling roles don't automatically trigger prohibited transactions.

For example:

• In one DOL advisory opinion, an IRA owner and spouse owned less than 1% of a publicly traded company, and the IRA held a proportionately small interest. The DOL concluded this was not a per se prohibited transaction, while cautioning about potential self-dealing concerns.
• In another case, siblings held varying IRA ownership interests in an LLC. Because disqualified persons did not collectively control the company, a per se prohibited transaction was avoided. However, the DOL emphasized that the analysis depends on the facts and circumstances.

These opinions reinforce an important point:

Minority ownership combined with an officer or director role is not automatically prohibited, as long as the transaction is structured exclusively for the benefit of the IRA and there is no personal benefit beyond investment returns.

Key Compliance Conditions

If you are personally involved in a business that your IRA invests in, you must carefully follow these principles.

1. The Investment Must Exclusively Benefit the IRA

The investment must be structured solely to benefit the IRA. If IRA funds are used in a way that benefits you beyond your investment return, the IRS may view that as a prohibited transaction.

2. Ownership Must Remain Below 50% by Disqualified Persons

Ownership, including your personal stake, your IRA’s stake, and any other disqualified persons’ interests, should remain under 50%. If disqualified persons collectively control the company, the entity becomes a disqualified person and IRA dealings will trigger prohibited transaction rules.

3. Avoid Self-Dealing and Personal Benefit

Even if ownership remains under 50%, personal benefit can still create a prohibited transaction. This includes compensation, access to insider opportunities, or preferential treatment that benefits you outside of your IRA’s investment return.

4. No Services by Disqualified Persons

Providing services to the IRA or to an IRA-owned entity, even without compensation, may constitute a prohibited transaction. That means active involvement in management or operations by you or other disqualified persons can create risk if not structured properly.

Advisory Opinion Insights

Although DOL advisory opinions are not binding precedent like a court decision, they provide meaningful insight into how regulators analyze these situations.

Those opinions consistently show:

• Minority ownership by an IRA owner doesn't automatically trigger a prohibited transaction.
• Ownership combined with an officer title or employment increases scrutiny but doesn't create a per se violation without evidence of self-dealing or personal benefit.
• The overall structure and facts matter most, particularly whether the IRA owner’s role influences decisions in a way that benefits them personally rather than the IRA.

Structure drives compliance.

Practical Example

Assume an IRA invests in 30% of a closely held LLC that develops software. The IRA owner and spouse own no additional equity personally. The IRA owner holds the title of Chief Technology Officer, receives no compensation, and has no ability to extract economic benefit. All profits are distributed pro rata to investors.

In this situation:

• The company is not a disqualified person because disqualified persons do not own 50% or more.
• Based on DOL interpretations in similar fact patterns, the IRA investment is not automatically a prohibited transaction.

However, documentation and structure remain critical.

Why This Matters for IRA Financial Clients

At IRA Financial, we help clients invest IRA assets in sophisticated structures, including operating companies, private equity, real estate, and private lending, while remaining compliant with IRS and DOL regulations.

Our compliance focus is straightforward:

• Understand the disqualified person rules under IRC § 4975.
• Structure ownership so the IRA acts exclusively for its own benefit.
• Avoid any form of personal benefit or self-dealing.
• Maintain strong documentation and proper legal support.

When investing in private companies, the issue is not the title of officer or manager. The issue is whether the role creates a prohibited transaction under IRC Section 4975(c) or results in direct or indirect personal benefit to a disqualified person.

The IRA must receive 100% of the benefit connected to the investment.

Summary

Being an officer, director, or manager of a company your IRA invests in is not automatically prohibited, provided that:

• The IRA investment is structured solely for the IRA’s benefit.
• Ownership by disqualified persons, including your IRA, remains below 50% in the aggregate.
• There is no direct or indirect personal benefit beyond your IRA’s investment return.

The IRS and Department of Labor focus on substance over labels. Compliance depends on structure, documentation, and clearly defined roles.

If you are considering investing your IRA in an operating company where you may also serve in an executive or board capacity, consult experienced legal counsel and work with a custodian that understands Self-Directed IRA compliance.

At IRA Financial, we have decades of experience structuring these arrangements. We help clients deploy retirement capital into private business opportunities without triggering prohibited transactions, preserving the tax advantages of the IRA while allowing investors to pursue alternative strategies.

by Adam Bergman

The 4% Rule for Retirement and How Self-Directed IRAs May Change the Equation

One of the most widely cited concepts in retirement planning is the 4% rule. For decades, financial advisors have used it as a straightforward framework to help determine how much retirees can safely withdraw from their retirement accounts without running out of money.

That said, retirement planning in 2026 looks very different from when the rule was first introduced. Investors are living longer. Inflation remains a real concern. And more individuals are turning to alternative investments through Self-Directed IRAs to gain greater control and diversification.

Understanding how the 4% rule works, and how it interacts with alternative assets and Self-Directed IRAs, can help you build a more resilient and flexible retirement income strategy.

What Is the 4% Rule?

The 4% rule was developed in the 1990s by financial planner William Bengen. After analyzing decades of historical market data, Bengen concluded that retirees could withdraw 4% of their retirement savings in the first year of retirement and then adjust that amount annually for inflation. His research suggested there was a high probability the portfolio would last approximately 30 years.

For example, if someone retires with $1 million in retirement savings, the rule suggests withdrawing:

• $40,000 in the first year of retirement
• Then adjusting that amount each year for inflation

The rule was originally tested using portfolios composed primarily of stocks and bonds. Historically, those assets generated enough long-term growth to sustain withdrawals over a typical retirement period.

Another way to look at it is this: retirees should accumulate roughly 25x their desired annual retirement spending before retiring. If someone wants $80,000 of annual income from investments, the rule suggests they would need roughly $2 million saved.

The concept is simple. But it's not a one-size-fits-all formula. It's a planning guideline.

Why the 4% Rule Is Being Revisited

The financial world has changed dramatically since the 1990s. Longer life expectancies, higher healthcare costs, and increased market volatility have caused many analysts to revisit what a “safe” withdrawal rate really looks like.

Recent research suggests the safe withdrawal rate for some retirees may be closer to 3.7% to 3.9%, depending on market conditions and portfolio structure.

There are several reasons for this reassessment.

First, many retirees today may spend 30 to 40 years in retirement, especially if they retire in their early 60s. The longer your portfolio needs to last, the more conservative your withdrawal rate generally needs to be.

Second, retirees face sequence-of-returns risk. If markets decline significantly in the early years of retirement while withdrawals continue, the portfolio can struggle to recover.

Finally, inflation erodes purchasing power over time. A retirement that lasts several decades must account for rising housing, healthcare, and living costs.

All of this has led financial planners to move toward a more flexible, adaptive approach to retirement income planning.

Where Self-Directed IRAs Fit Into the 4% Rule

The original 4% rule assumed a traditional portfolio composed primarily of publicly traded stocks and bonds. Today, that is not the only option.

Many investors are using Self-Directed IRAs to invest in alternative assets such as real estate, private credit, private businesses, and precious metals.

A Self-Directed IRA does not change the tax rules of an IRA. Contributions, distributions, and withdrawal rules remain the same. What changes is the type of investments the account can hold.

That expanded investment universe can influence how retirees think about the 4% rule.

Instead of relying exclusively on selling stocks to fund retirement withdrawals, some investors generate income directly from alternative investments held inside a Self-Directed IRA.

Examples include:

• Rental income from real estate investments
• Interest payments from private lending
• Cash flow from private business investments
• Royalties or other income-producing assets

In these situations, the portfolio itself may produce ongoing income streams. That can reduce the need to sell assets each year to meet retirement spending needs.

Example: The 4% Rule With Alternative Assets

Consider two retirees, each with $1 million in retirement savings.

Traditional Portfolio

The first investor follows a traditional stock-and-bond approach.

Using the 4% rule:

• First-year withdrawal = $40,000
• Portfolio income comes primarily from selling assets or receiving dividends

This strategy can work well if markets perform over time. But it depends heavily on continued portfolio growth.

Self-Directed Portfolio

The second investor uses a Self-Directed IRA with diversified assets:

• $400,000 in real estate generating $18,000 in annual rental income
• $300,000 in private credit generating $21,000 in interest income
• $300,000 in equities

In this case, the investor already receives $39,000 in annual income from alternative investments.

Rather than selling assets each year, the investor may only need to withdraw a small portion of the remaining portfolio.

This highlights an important point. The 4% rule is fundamentally a withdrawal framework. It does not account for the possibility that a retirement portfolio may generate direct income through alternative investments.

A More Flexible Approach to Retirement Withdrawals

Many modern retirement strategies treat the 4% rule as a starting point rather than a strict rule.

Instead of withdrawing the same inflation-adjusted amount every year regardless of market conditions, retirees may adjust withdrawals based on:

• Portfolio performance
• Income generated from investments
• Inflation levels
• Lifestyle needs

For investors with Self-Directed IRAs, retirement income may come from multiple sources at the same time.

A diversified retirement income strategy might include:

• Social Security benefits
• Rental income from real estate
• Interest from private loans
• Dividends from public equities
• Occasional portfolio withdrawals

When you have multiple income streams, the traditional withdrawal formula becomes less central to your overall strategy.

The Real Lesson of the 4% Rule

The most important takeaway is not the exact percentage.

The 4% rule reinforces the importance of sustainable withdrawal planning.

Retirement success ultimately comes down to balancing three key factors:

1. Investment growth
2. Spending discipline
3. Tax efficiency

When you combine diversified assets with a thoughtful withdrawal strategy, you put yourself in a stronger position to sustain retirement savings over the long term.

For many investors, Self-Directed IRAs provide an additional tool to help achieve that balance by expanding diversification beyond traditional markets.

How the 4% Rule Works with a Self-Directed IRA

The 4% rule was built around the assumption that retirees would periodically sell portions of a stock-and-bond portfolio to generate income while the remaining investments continued to grow.

With a Self-Directed IRA, the mechanics can look different.

A Self-Directed IRA follows the same contribution, tax, and withdrawal rules as any other IRA. However, it allows you to allocate retirement capital into a broader range of investments. Because many of these investments generate income, such as rental income or interest payments, retirees may rely on internal cash flow rather than selling assets.

For example, a retiree following the traditional 4% rule might sell shares of mutual funds each year. In contrast, an investor with a Self-Directed IRA may receive rental payments, interest from private loans, or distributions from private businesses that help fund retirement expenses.

In that sense, the 4% rule still serves as a useful benchmark. But the withdrawal strategy can be more dynamic.

If income streams cover a significant portion of annual expenses, the retiree may withdraw less from the underlying portfolio. That can allow more assets to remain invested and potentially continue compounding. Diversification also plays a role. The original 4% research assumed exposure primarily to public markets. By incorporating alternative investments through a Self-Directed IRA, some investors seek to diversify both return sources and income streams.

Alternative assets carry risks and are not suitable for every investor. However, when properly structured, they may complement a long-term withdrawal strategy.

Ultimately, the 4% rule should be viewed as a general planning guide. For Self-Directed IRA investors, it can serve as a foundation that is enhanced by income generated from alternative investments within the account.

Final Thoughts

The 4% rule remains a helpful starting point for thinking about retirement withdrawals. But it was never intended to be rigid.

In today’s retirement environment, you need to think about longevity, market uncertainty, inflation, and tax efficiency. For many investors, Self-Directed IRAs and alternative investments provide additional tools to diversify income sources and improve long-term sustainability.

The objective is not simply to follow a rule. The objective is to build a retirement strategy that can adapt to changing economic conditions and support financial security for decades.

by Adam Bergman

The Complete Guide to Using a Self-Directed IRA for Options Trading in 2026

Options are powerful financial instruments that give investors the right, but not the obligation, to buy or sell a security at a predetermined price by a specified date. For years, options trading has been associated with taxable brokerage accounts. But more and more sophisticated investors want to use options inside their retirement accounts.

A Self-Directed IRA gives you that flexibility. It allows you to trade options while preserving the tax advantages of a retirement plan, but only if the transactions are structured and understood properly.

As of 2026, the tax treatment of options inside an SDIRA is still governed by longstanding IRS rules, including language from IRS Publication 598, Tax on Unrelated Business Income of Exempt Organizations. That publication provides important legal context for what is and is not treated as taxable income for retirement entities. If you do not understand these rules, you can easily run into unintended tax consequences, especially Unrelated Business Taxable Income (UBTI) and Unrelated Debt-Financed Income (UDFI).

In this article, I am going to walk you through the basics of options, how they can be used inside a Self-Directed IRA in 2026, and the current IRS legal foundation for their taxation, including the key exclusions retirement investors need to understand.

What Are Options? A Quick Recap

An option is a contract that gives the holder the right to buy, which is a call option, or sell, which is a put option, an underlying security at a specified strike price before or at the expiration date.

There are several key differences between options and simply owning stock:

• Defined risk and leverage. Options can magnify returns or limit risk to the premium paid.
• Expiration dates. Options have finite lifespans, unlike stocks.
• Multiple strategies. These include covered calls, protective puts, spreads, and straddles.

Because options are derivatives, meaning their value is derived from an underlying asset, their tax treatment can be more complex than direct stock trades. That complexity increases when you use them inside a tax-advantaged account like an SDIRA.

Can You Trade Options in a Self-Directed IRA? Yes, But There Are Rules

The IRS does permit options trading in retirement accounts, including Self-Directed IRAs, as long as the activity does not create prohibited transactions or generate unrelated business taxable income without justification.

Here is what that means in practical terms:

• Buying puts or calls is generally acceptable, as long as the underlying investment and the trade are consistent with IRA purposes and do not involve prohibited self-dealing.
• Writing covered calls is a common strategy for income-oriented IRA investors.
• More complex multi-leg strategies can trigger technical tax issues and should be analyzed carefully.

Where investors get tripped up is not in placing the trade. It is in understanding how the IRS treats the gains and losses, especially when options are tied to business operations or involve leverage.

UBTI and Options: What IRS Publication 598 Says

If you are going to trade options inside a Self-Directed IRA, you need to start with the IRS’s own guidance. IRS Publication 598 governs the tax on unrelated business taxable income for exempt organizations, including certain retirement entities. It includes language that is directly relevant to options:

“Lapse or termination of options. Any gain from the lapse or termination of options to buy or sell securities is excluded from UBTI. The exclusion applies only if the option is written in connection with the exempt organization’s investment activities.”

IRS Publication 598 (2026), Section 3, Unrelated Business Taxable Income Exceptions

This language gives us an important legal foundation. It tells us how option transactions tied directly to investment activities should be treated, even inside a retirement account.

Key Principle:

If an option expires or is terminated and it is tied to investment activities, any gain from that lapse is not treated as UBTI. In other words, it is not taxable as unrelated business income.

However, this exclusion does not apply if options are held as inventory or as part of an ongoing trade or business.

For most Self-Directed IRAs, which are not engaged in a regular trade or business, this means:

• Gains from expired or lapsed options tied to investment activities are not considered UBTI.
• Options must be held in an investment context, not as part of an operating business.
• Business-style option writing or highly structured trading activity may require deeper analysis to avoid adverse tax consequences.

How Different Options Transactions Are Treated in 2026

1. Buying Options, Calls or Puts

Tax treatment. Gains or losses realized when you sell or exercise the option stay inside the retirement account and are not taxable in the year of the transaction.

UBTI risk. Generally none, unless the option is part of a business activity or financed with debt.

2. Covered Call Writing

A covered call involves owning the underlying security and selling a call option against it to generate income.

Under IRS Publication 598, if covered calls are part of investment activities, gains from expiration or termination are excluded from UBTI.

Tax implication. Covered call premiums and related outcomes remain tax-advantaged inside the SDIRA.

3. Protective Puts

Buying protective puts to hedge downside risk does not generate UBTI and is treated as an investment transaction.

Any gains or losses flow back into the SDIRA without annual taxation.

4. Spreads, Straddles, and More Complex Structures

These strategies involve multiple legs and can create more complicated tax questions. If they begin to resemble a business-type trading operation rather than passive investment activity, there is potential risk.

In those situations, it is smart to consult tax counsel who understands retirement plan rules.

When UBTI or UDFI Can Apply

While many standard options trades do not trigger UBTI, there are situations where unrelated business taxable income can arise inside an SDIRA.

Debt-Financed Investments

If your SDIRA uses leverage, including margin or certain structured arrangements, to acquire stocks or options, you may generate Unrelated Debt-Financed Income, which is a subset of UBTI. That can create a tax liability inside the IRA.

Business-Like Option Activities

If options are treated as inventory or used as part of a regular business, the gains may not qualify for the lapse exclusion in Publication 598 and could be treated as UBTI.

Futures, Commodities, and Non-Security Derivatives

Certain futures contracts and non-security derivatives are treated differently than listed stock options and may generate UBTI unless another exclusion applies. These are advanced areas and require professional review before implementation.

Practical Steps for Options Trading in a Self-Directed IRA in 2026

1. Verify Your Plan Language
   Make sure your Self-Directed IRA plan documents explicitly permit options and derivative activity.
2. Use a Qualified SDIRA Custodian
   Work with a custodian that understands alternative assets and options execution. Proper execution and reporting matter.
3. Document the Investment Purpose
   Keep clear records showing that your options activity is investment-oriented and not part of an operating business. Document expiration, exercise, and sale events.
4. Monitor for UBTI Triggers
   Before entering complex strategies or using leverage, evaluate the potential for UBTI or UDFI with a retirement tax professional.
5. Seek Professional Tax Guidance
   Options are nuanced. Their tax treatment can vary based on structure and intent. For advanced strategies, you want counsel that understands retirement plans and derivative taxation.

Why the Legal Foundation Matters

One of the most valuable aspects of IRS Publication 598 is the lapse exclusion. Although the publication is written primarily for exempt organizations, its rules regarding when gains are excluded from UBTI provide a clear legal framework for retirement accounts. That guidance remains authoritative in 2026.

When you anchor your strategy to actual IRS guidance, not informal commentary, you put yourself in a much stronger position. As I always tell clients, compliance is not about guessing. It is about building on solid legal footing.

Advantages of Using a Self-Directed IRA to Invest in Options

One of the biggest advantages of using a Self-Directed IRA to invest in options is the ability to implement sophisticated trading and risk management strategies without the annual tax friction you would face in a taxable brokerage account. Inside an SDIRA, option premiums, gains from exercised or closed positions, and income generated from covered call strategies can compound on a tax-deferred or tax-free basis, depending on whether the account is Traditional or Roth.

That structure matters. It allows you to rebalance, hedge, and generate income using options without triggering short-term capital gains taxes, which can be especially punitive for frequent or income-oriented strategies. In addition, Self-Directed IRAs give you the flexibility to pair options strategies with a broader range of investments, such as individual equities, ETFs, and alternative assets, while maintaining IRS compliant ownership and reporting.

When properly structured, an SDIRA allows you to use options not as speculative tools, but as disciplined components of a long-term retirement strategy built around risk control, income generation, and tax-efficient growth.

Conclusion: Options Can Be Part of a Thoughtful SDIRA Strategy If Done Right

Options present a compelling way to enhance yield, hedge risk, and participate in more sophisticated market strategies within a Self-Directed IRA. Thanks to IRS guidance, particularly the lapse exclusion in Publication 598, many common options transactions can be executed inside retirement accounts without triggering annual tax liabilities such as UBTI.

That said, executing options inside an SDIRA is not simple. Understanding when an option gain is excluded from UBTI, when UDFI can apply, and how a specific strategy is interpreted for tax purposes requires careful planning and specialized expertise.

If you want to incorporate options into your long-term retirement strategy, working with a custodian and tax advisors who specialize in alternative asset IRAs and understand the current IRS rules is essential. With the right structure and professional support, Self-Directed IRA options investing can be both powerful and compliant in 2026.

by Adam Bergman