Let's take a look at some of the most common and costly IRA mistakes. Anyone can make a mistake but, if you know what kind of transaction to avoid from the beginning, you are less likely to end up paying for it.

Most of the common and costly IRA mistakes occur within the self-directed or self managed account. Typically, if someone like T. Rowe Price or Schwab manages your account, you will have nothing to worry about.

But, if you open a self directed account, you should look for a group of trustees that are familiar enough with the laws to be able to offer some education. Trustees are passive, for the most part. They are not allowed to give specific advice about what to invest in, but they should be able to advise you about what to avoid.

There are several official documents that you may want to read, in order to avoid common and costly IRA mistakes. These documents include the provisions of a law called ERISA, the Internal Revenue Code on Prohibited Transactions and the Internal Revenue Code on UBIT, or unrelated business income tax.

But, in plain English, the most common and costly IRA mistakes are transactions that can be considered "self-dealing". Simply put, your retirement account is supposed to benefit your future, not your current economic situation. Maybe, that requires further explanation.

One of the common and costly IRA mistakes is investing in a company's stock, when the account holder owns a majority of the company. If you hold more than 50% of a company's stock, you cannot use your retirement account for additional holdings. Under the law, you and your account are separate entities. That protects your account from present day creditors.

You see. All of the common and costly IRA mistakes threaten the tax-free or tax-deferred status of the account. That's why they are "costly". If you made a mistake, you could face serious tax penalties. Profits and income that the account made for that year could all be taxed, even if it was only one investment that was prohibited.

Some examples of prohibited transactions include borrowing form the account, selling property to it, using it as security for a personal loan and buying property for personal use. Your close family members are also mentioned in the laws. They are called "disqualified persons".

There are other things that are allowed under the law, but can increase your taxes. For example, you are allowed to finance a real estate purchase within the account, as long as only the property is used as collateral and not the account itself. But, income or profits made from a financed property are subject to UBIT, which is mentioned above.

Other common and costly IRA mistakes include taking a vacation in an investment property, renting office space in a building owned by the account and renting properties to disqualified persons. As with any thing else, education is really the key. Any of these transactions can be avoided, as long as you make an effort to educate yourself.

Buying real estate with funds from retirement accounts has become a popular choice for investors. But, if they don't follow the rules, then they will end up paying. Get good advice from people you trust and you can avoid the common and costly IRA mistakes, as you continue to fund your future.