ROSELAND, NJ, September 13, 2025 /24-7PressRelease/ -- In a recent blog article, Next Generation Trust Company explains how certain types of alternative investments in self-directed IRAs may trigger two types of tax liabilities: unrelated debt-financed income (UDFI) based on the account's earned income (often from real estate holdings) and unrelated business income tax (UBIT).

"These are important factors that investors must be aware of—especially self-directed investors who can hold a wide array of alternative assets within their accounts," said Jaime Raskulinecz, CEO of Next Generation, which provides full account administration and asset custody for self-directed IRAs (SDIRAs) and other self-directed plans. "While SDIRAs are tax-advantaged accounts, these tax liabilities are triggered when specific conditions are met."

The article outlines what UDFI and UBIT are and typical scenarios in which they apply to an IRA.

• UDFI is income that is generated by a financed asset within a self-directed IRA, which is often associated with real estate, one of the most popular asset classes in these plans. An example is when the investor uses a non-recourse loan to finance part of a real estate investment (such as vacation property or a multifamily dwelling) in addition to IRA funds. The rent payments are considered unrelated debt-financed income because the IRA-held property was at least partially financed.
• UBIT in an IRA is a tax that's applied on earnings of $1,000 or more on an investment that is at least partially financed. The earnings can be considered unrelated debt-financed income which are in turn subject to unrelated business income tax. The taxes are paid on the portion of the property that was financed.

In addition to debt-financed income as a trigger for UBIT, the article cites auxiliary income earned by the investment from truly unrelated business activity and income generated from an unincorporated business in which the SDIRA has invested. It also provides information about other important considerations regarding UDFI and UBIT, exemptions and the penalties associated with nonpayment of these required taxes. Failure to pay may also jeopardize the self-directed IRA.

"It is so important that investors truly do their full due diligence and research, and understand all the factors related to alternative assets before making a nontraditional investment within a SDIRA," noted Raskulinecz. "We strongly recommend that our clients consult a trusted tax advisor before making the investment, to best plan for and minimize the financial impact of any tax event."

Read the full blog here. More information about SDIRAs and the many alternative assets these plans allow is at www.NextGenerationTrust.com.

About Next Generation
Next Generation Trust Company is a custodian of self-directed retirement plans, chartered in South Dakota. Its sister firm, Next Generation Services, provides comprehensive account administration and transaction support. The neutral third-party professionals at Next Generation expertly guide clients and their trusted advisors as part of their white glove, personalized service for a seamless transaction experience from start to finish and educate consumers and professionals about self-directed retirement plans and the many alternative assets these plans allow. For more information, visit www.NextGenerationTrust.com.

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