What are Prohibited Transactions?

What Transactions Are Prohibited in a Self-Directed IRA?

Prohibited transactions are dealings that can invalidate your IRA. The following explanation is not a complete listing of the rules on prohibited transactions, but is intended to provide some of the basic rules to consider as you move forward with your personal transactions.

In general, most people find that once they understand the concept of Prohibited Transactions the rules are “common sense” and generally easy to follow. If you wish to review the complete Internal Revenue Code (IRC) section(s) on this topic, please refer to IRC Section 4975 (c) (1) and 4975 (e) (1).

^{_{Prohibited transactions are divided into two groups:}}

A prohibited “investment”
A transaction with a “disqualified party”

There are three basic “prohibited transactions” that you are required to avoid in your IRA.

^{_{Prohibited Investments:}}

Do not use the money in an IRA to buy life insurance products.
Do not use the money in an IRA to invest in “Collectibles.”
Do not carry on transactions with a “Disqualified Party.” (see below)

^{_{Who are Disqualified Persons:}}

THE IRA OWNER (YOU)	YOUR SPOUSE
YOUR CHILDREN	YOUR SPOUSE’S CHILDREN
YOUR GRANDCHILDREN	YOUR SPOUSE’S GRANDCHILDREN
YOUR PARENTS	YOUR SPOUSE’S PARENTS
YOUR GRANDPARENTS	YOUR SPOUSE’S GRANDPARENTS
THE IRA BENEFICIARY	ANY BUSINESS YOU CONTROL
ANY ACCOUNT IN WHICH YOU ARE A FIDUCIARY	ANY FIDUCIARY TO THIS ACCOUNT

The over arching concept for the above is that you and the other people listed above cannot benefit from the assets held by the IRA.

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Submitted by Dennis Blitz, The IRA Club

IRA Club, 333 N. Michigan Ave Suite 2220, Chicago, IL 60601

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