Prohibited Transactions

Self-directed retirement accounts provide a great deal of freedom, flexibility, and a wealth of investment choices. However, there are IRS rules for self-directed IRAs that investors need to be aware of to maintain these benefits. The IRS mandated these rules to ensure that your retirement plan does not provide you any personal benefits until retirement. Be sure you understand these rules to keep your account in compliance. If you do not follow these rules, your plan could suffer penalties, taxation, or loss of its tax-sheltered status. You should always consult your attorney, tax, and investment professionals regarding your investment decisions.

Examples of Prohibited Transactions include:

• Borrowing money from your IRA
• Selling, exchanging, or leasing personally owned property to your IRA
• Using your IRA as security for a loan
• Transferring plan income or assets to disqualified persons
• Lending IRA money to disqualified persons
• Extending credit on your IRA to disqualified persons
• Furnishing goods, services, or facilities to disqualified persons
• Allowing fiduciaries to obtain or use the plan’s income or assets for their own interest

Potential Consequences of a Prohibited Transaction

Failure to follow the IRS’s prohibited transaction regulations may lead to costly consequences. This could also jeopardize the tax status of your plan. Suppose there is a prohibited transaction in an IRA account at any time during the year. In that case, the account stops being an IRA as of the first day of that year. The account is treated as having distributed all its assets to the IRA owner at the fair market value on the first day of that year. Consult with your tax or legal advisor about what may be deemed prohibited before engaging your IRA in any transaction.