What are Prohibited Transactions?

Prohibited Transactions

Self-directed individual retirement accounts provide a great deal of freedom, flexibility, and choice of potential investments. However, they are also governed by a set of rules that self-directed investors must be aware of and follow.

Prohibited Transactions - Some types of self-directed transactions violate the basic intent of your individual retirement account, and may subject your account to risks and penalties.

Your retirement plan is intended to benefit you when you retire and not before. Transactions that can be interpreted as providing immediate financial gain to the account holder or other disqualified persons are not allowed.

For example, an IRA holder may not:

• Borrow money from the individual retirement account
• Sell, exchange or lease property to their IRA
• Receive unreasonable compensation for managing property held by the IRA
• Use the IRA as security for a loan
• Transfer plan income or assets to disqualified persons
• Lend IRA money to disqualified persons
• Extend credit on their IRA to disqualified persons
• Furnish goods, services, or facilities to disqualified persons
• Allow fiduciaries to obtain or use the plan's income or assets for their own interest

For IRAs or 401(k)s, a disqualified person is:

• The IRA holder and his or her spouse
• The IRA holder's lineal descendants, ascendants and their spouses
• Investment advisers and managers
• Any corporation, partnership, trust, or estate in which the IRA holder has a 50 percent or greater interest
• Anyone providing services to the IRA, such as the trustee or custodian (See IRS Section 4975 for a complete list of prohibited parties credentials)

Prohibited Holdings in a Self Directed IRA

In addition, you may NOT purchase any of the following in a self-directed IRA:

• Collectibles (includinng works of art, rugs, antiques)
• Metals other than gold, silver and palladium bullion
• Gems
• Stamps
• Coins (except certain U.S.-minted coins)
• Alcoholic beverages, and other tangible personal property as may be defined by the Secretary of the Treasury is prohibited.

However, your individual retirement account may invest in one, one-half, one-quarter, or one-tenth ounce U.S. gold coins, or one-ounce silver coins minted by the Treasury Department. It can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion.

Please refer to IRS publication 590 for more information.

The AdvantaIRA Learning Center includes tips, articles, rules, and information to regarding self-directed investments.