Prohibited Transactions and Investments

A prohibited transaction can bring into question the tax-deferred status of your account, potentially resulting in the disqualification of your IRA and severe tax consequences.

The IRS defines a prohibited transaction as follows:
"Generally a prohibited transaction is any improper use of your IRA account or annuity by you, your beneficiary or any disqualified person. Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of lineal descendant)."--Source IRS Publication 590

Publication 590 indicates that, in addition to prohibited investments, the IRS prohibits certain transactions with IRAs. Prohibited transactions include investments with disqualified individuals (as defined by IRC 4975), “self-dealing” and receiving indirect benefits.

Investments made with self directed IRAs must be at arms length, which is most often defined as a willing buyer and willing seller coming together with no undue influence from outside sources.

Prohibited Transactions—Self Dealing/Indirect Benefits - Self dealing must be avoided in self directed IRA investments.

Legal Notice: For your assistance, links to the applicable sections of the Internal Revenue Code addressing IRAs can be found here. In addition, links to guidance regarding IRAs as issued by the IRS in the form of IRS Publications can be found here.