Prohibited Transactions

Prohibited transactions in a Self-Directed IRA are actions that are not allowed under IRS rules, and engaging in them can result in severe penalties, including the disqualification of the IRA and the taxation of the account's assets as if they were distributed.  IRC 4975(c) (1), identifies prohibited transactions to include any direct or indirect: 

• Selling, exchanging, or leasing of property between the plan and a disqualified person.
• Lending money or other extension of credit between the plan and a disqualified person.
• Furnishing goods, services, or facilities between a plan and a disqualified person.
• Transferring IRA income or assets of to a disqualified person, or using the plan’s income or assets for the benefit of a disqualified person. 
• Dealing with the plan’s income or assets by a disqualified person who is a fiduciary (trustee or money manager) acting in his or her own interest or for his or her own account. 
• A fiduciary who is a disqualified person receiving any consideration for her/his own personal account from any party dealing with the plan in connection with a transaction involving the income or assets of the plan.
• Collectibles. These include: Artworks, Rugs, Antiques, Metals, Gems, Publication 590-A (2023), Stamps, Coins, Alcoholic beverages, and Certain other tangible personal property.

Disqualified persons are individuals or entities between whom or which an IRA is prohibited from engaging in any direct or indirect sale or exchange or leasing of any property; lending of money or other extension of credit; furnishing goods, services, or facilities; or transferring to or permitting the use of IRA income or assets. 

• The IRA owner
• The IRA owner’s spouse
• Ancestors (Mom, Dad, Grandparents)
• Lineal Descendants (daughters, sons, grandchildren)
• Spouses of Lineal Descendants (son or daughter-in-law)
• Investment advisors
• Fiduciaries – those providing services to the plan
• Any business entity i.e., LLC, Corp, Trust or Partnership in which any of the disqualified persons mentioned above has control.  Control is defined as either 50% or greater ownership or an executive day-to-day decision making role.

Reference: IRC 4975

NOTE: The term “disqualified person” under the Internal Revenue Code Section 4975 does not include siblings (brothers and sisters) or aunts, uncles, and cousins of the IRA owner.

 Please note that the content on this site is intended solely for informational purposes. Summit does not offer tax advice, and the IRS can alter regulations without much warning. If you're managing a retirement account, it's wise to seek advice from a tax professional or refer directly to the IRS resources at www.irs.gov to ensure your decisions are well-informed and aligned with the latest tax laws. Remember, your financial strategy should be tailored to your unique circumstances.