Five Transactions the IRS Prohibits in a Self Directed IRA

Five Transactions the IRS Prohibits in a Self Directed IRA

While self directed IRAs offer many benefits, it’s important to understand what you cannot, otherwise you may jeopardize your IRA’s tax-deferred status. Losing tax deferred status triggers immediate payment of taxes and substantial penalties that could wipe out much of your hard earned investment gains.  This article focuses on types of transactions that you must avoid in order to preserve your IRA’s favorable tax status.

The IRS forbids certain transactions providing a direct use or benefit to you or any disqualified person (ie, IRA holder, spouse, “lineal descendants”, account fiduciaries, trustees, investment managers, or any corporate entity in which IRA account holder owns 50% or greater ownership stake). Such prohibited transactions are:

1) Accepting what is considered unreasonable compensation for managing the assets or property the IRA holds

2) Borrowing money personally from the IRA

3) Pledging the IRA as collateral or security for a loan

4) Sale, rental, lease or exchange of property to or from the IRA

5) Allowing account fiduciaries to access assets for purposes of obtaining a loan for personal gain

For more information on prohibited transactions, please visit Publication 590, Individual Retirement Arrangements (IRAs).

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