Prohibited Transactions Under the Provisions of ERISA

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

The following is the definition of a prohibited transaction that comes from IRS Publication 590 and speaks of those acts that you should avoid so as not to incur additional taxes and other costs, including loss of IRA status.

“Prohibited Transactions"
Generally, a prohibited transaction is any improper use of your traditional 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 a lineal descendant).
The following are examples of prohibited transactions with a traditional IRA:

• Borrowing money from it.
• Selling property to it.
• Receiving unreasonable compensation for managing it.
• Using it as security for a loan.
• Buying property for personal use (present or future) with IRA funds.”

-Source IRS Publication 590

Related Information:

Plain English Rule Explanations

• Prohibited Transactions and Investments - What investments your IRA cannot invest in under IRS guidelines.
• Self Dealing Rule - Understand the most important self directed IRA investing rule—who your IRA cannot purchase investments from.
• Indirect Benefits Rule“- Can I live in the vacation home my IRA owns? No.” Understand why your IRA, not you personally, needs to be receiving benefits of your investments
• UBIT - Learn how and when, in plain English, your IRA incurs tax because of leveraged investments or business income.

Further Information

• Section 4975 of the Internal Revenue Code - Internal revenue code referencing prohibited transactions with IRAs.

Legal Notice: This is a general overview and should not be construed as legal advice. Links to the ultimate authorities on matters concerning IRAs, including publications and codes released by the Internal Revenue Service can be found here.