What is a prohibited transaction?
There are some transactions that are prohibited by the IRS. There are basic requirements and procedures needed to apply for exemptions from the prohibited transaction rules (includes ERISA and non-ERISA plans and Individual Retirement Arrangements). If you are considering this, please contact one of our local offices.
Generally, a prohibited transaction is any improper use of your self-directed IRA by you, your beneficiary or any disqualified person. A disqualified person would include your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of a lineal descendant or a transaction between you and your beneficiary).
While IRS regulations only prohibit three types of assets from inclusion in an IRA, there are many possible prohibited transactions. The most common prohibited transaction is one between the IRA and a “disqualified person.” You are not permitted to conduct transactions between these persons and your IRA. For example, purchasing a house for your parents to live in with funds from your IRA is not permitted. Your IRA also cannot loan to a disqualified person. The IRS enacted these rules, also called self-dealing rules, to stop family members from creating transactions designed to avoid taxes associated with IRA distributions. It is important to consult with a professional if you are involving any family members in a transaction with your IRA. If you engage in a prohibited transaction with your IRA, you will be taxed on the entire value of your IRA. In addition, you will be subject to penalties if you are under age 59 ½. If VRAC is aware that you may be creating a prohibited transaction, w
