Breaking the rules can result in severe tax consequences. Whenever you are unsure of a transaction or situation, always consult with a tax or financial advisor before you act to get clarification. Here are the main rules that you should remember when engaging in a transaction with your self-directed account.
The IRA investor or his or her beneficiaries cannot engage in a transaction with a disqualified person. These persons are listed below. When you break this rule, your IRA is no longer an IRA and it loses its tax benefits.
The IRA investor cannot use the self-directed IRA for personal benefit. For example, rental income from an investment property owned by the IRA must be deposited in the IRA account and not in a personal account. All income from IRA assets must be put back in the IRA.
The IRA investor cannot invest in disallowed assets per IRS rules for retirement accounts. Disallowed IRA assets or investments are explained further below.
Disqualified Persons are people or entities that cannot do any direct or indirect deals, investments or transactions with the IRA.
The IRA cannot do business with:
A Self-Directed IRA can hold alternative investments beyond publicly traded stocks, bonds, and mutual funds. Depending on the custodian, available investments may include real estate, promissory notes, private placements, and other alternative assets.
The IRS does not provide a complete list of approved IRA investments. Instead, federal law identifies certain assets that IRAs cannot hold. Custodians may also restrict investments they do not support.
Prohibited IRA investments include the following:
Collectibles generally include artwork, rugs, antiques, certain metals, gems, stamps, coins, alcoholic beverages, and other tangible personal property classified as a collectible under IRC Section 408(m).
Limited exceptions apply to certain coins and qualifying gold, silver, platinum, and palladium bullion. Applicable storage and custodial requirements must also be followed.
An IRA cannot invest in a life insurance contract under Internal Revenue Code Section 408(a)(3).
Traditional and Roth IRAs are generally not eligible shareholders of an S corporation. If an IRA acquires S corporation stock, the corporation could lose its S corporation status. Review IRS guidance concerning IRA ownership of S corporation stock and consult a qualified tax or legal professional before investing in a privately held business.
Your retirement plan is intended to benefit you when you retire, and not a moment before you reach that magic age. Transactions that the IRS interprets as providing you immediate, personal financial gain on investments owned by your retirement account are not allowed.
Making a prohibited transaction or dealing with a Disqualified Person strips away the tax-deferred feature of your account. This makes the transaction automatically and immediately taxable. (See IRC Section 4975 for a complete list of prohibited transactions.)
You cannot use your self-directed IRA to:
© 2026 IRAR Trust Company
|
Terms of Use
|
Privacy Policy
|
Sitemap
.png?width=540&height=480&name=Prohibited%20Transactions%20in%20IRAs%20(1).png)
