Are viaticals a prohibited investment for a self-directed IRA?

[Guest angieeasterling]

Are viaticals considered by the IRS as a prohibited investment for a self-directed IRA?

[Dave Baker]

Don't think so -- but is the insurance is not on the life of the IRA owner or a relative?

Or are you concerned about the prohibition against IRAs investing in life insurance?

[John G]

I believe that I am correct in saying that viaticals require front end payouts of cash. I don't see how you accomplish this with an IRA that has penalties on early withdrawals. At a minimum, I would expect this kind of investment would require high annual processing fees.

Why look so far a field to find an investment when you have 10,000 companies and 10,000 mutual funds to choose. You might even find one of those in the viatical business.

[John G]

Viatical: from the Latin "Viaticum" (vi-at'-i-kum), historically, an allowance for traveling expenses or provisions for a journey.) n. The proceeds from the sale of a life insurance policy to a third party by a terminally ill individual. {recently often an AIDS or cancer related issue}

I discovered the following statement at one Viatical sit: Insured Living Settlements can be used for both non-qualified (cash) and qualified investment accounts such as, I.R.A.'s, 403b's*, Keogh*, Defined Benefit Plans*, and 401k's*. [summitviatical.com]

However, the association web page does not seem to mention plan involvement. See

http://www.viatical.org/

Economic theory suggests that you should get only a risk based reward for viatical arrangements. The primary risk issue is how long before the patient dies. Given the high overhead and complication of this investment, I don't think there is much going for it. If it was that great, the insurance companies would want to be first in line. Don't expect any wopping big returns. And, this industry has historically been right up there with aluminum siding salesmen with misrepresentation and fraud.