Prohibited Transactions


What Triggers a Prohibited Transaction?


The IRS may assess a prohibited transactions tax if they learn that you have made a prohibited investment, or if your IRA has engaged in a transaction with a prohibited individual.

Prohibited investments include the following assets:

  • Life insurance
  • Certain kinds of precious metals
  • Art
  • Alcoholic beverages
  • Collectibles
  • Using the IRA or assets within it as collateral for a loan (other than a non-recourse loan within your IRA)

Additionally, you must comply with the following restrictions on prohibited individuals:

  • Neither you, your spouse, your descendants or ascendants, nor their spouses, nor any entities they control can lend to your IRA, nor borrow from it.
  • No prohibited individual can buy assets from or sell assets to your IRA, nor may any entity they control.
  • No prohibited individual can buy or sell services directly from or to your IRA, nor may any entity they control.
  • Neither you nor any prohibited individual can use IRA assets for their own benefit. For example, they cannot stay overnight in a property owned by your IRA, even if they pay rent.

For more information, the following links will open in a new window to information on the IRS website.

Note: The IRC materials linked to below are provided as a public service by The Legal Information Institute of Cornell University Law School, not the IRS.
TITLE 26 > Subtitle D > CHAPTER 43 > § 4975
IRC § 4975. Tax on prohibited transactions

American IRA, LLC does not offer investment, tax, financial or legal advice to clients. Individuals who believe they need advice should consult with the appropriate professional(s) licensed in that area.

IRS Resources

The links and information on this page are intended as a resource to help find specific information as it relates to Self Directed Retirement Plans.

Clicking on the links below will open a new window to the IRS website.

Retirement Topics

Correction to 2010 Publication 590, Individual Retirement Arrangements (IRAs) — 14-FEB-2011

 — 14-FEB-If you downloaded the 2010 Publication 590 before February 5, 2011, please note the following changes.

In the What’s New for 2011, on page 57, under Modified AGI limit for Roth IRA contributions increased, the amount in the last sentence of the 2nd bullet should be $122,000 (not $120,000).  The 2nd bullet should read:

Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2011 and your modified AGI is at least $107,000. You cannot make a Roth contribution if you modified AGI is $122,000 or more.

The amount should also be changed in the 3rd bullet in the paragraph under Table 2-1 on page 58.  The 3rd bullet should read:

Your filing status is different than either of those described above and your modified AGI is at least $107,000. You cannot make a Roth IRA contribution if your modified AGI is $122,000 or more.

The corrected version of the 2010 Publication 590 is now available for download.

Pensions/Annuities/Retirement Plans (i.e., 401(k), etc.)

Top Frequently Asked Questions for Pensions/Annuities/Retirement Plans (i.e., 401(k), etc.)

  1. This is the first year that I received a distribution of benefits from my retirement plan. Are any of my benefits taxable?
  2. What is the maximum amount that I can contribute to my 401(k) plan?
  3. If taxes are withheld from a distribution from a 401(k) plan, am I required to include the amount of the distribution as income and also pay the 10% additional tax?
  4. Can I withdraw my elective contributions to a 401(k) plan penalty free to build or purchase my first home?
  5. If I retire or leave my employer for any reason (including due to being laid off) before I am age 59 1/2, can I withdraw my vested benefits under that employer’s 401(k) plan, without having to pay a 10% additional tax? What if I were 55 or older when I separated from service with my employer?
  6. How long do I have to roll over a retirement distribution?
  7. I am a plan sponsor. Where can I find additional information on retirement plan document design requirements and the IRS Determination Letter Program?

Frequently Asked Question Subcategories for Pensions/Annuities/Retirement Plans (i.e., 401(k), etc.)

  1. General/Taxability Issues including Distributions, Early Withdrawals, 10% Additional Tax, Defaulted Loans
  2. Rollovers – Pensions/Annuities/Retirement Plans (i.e., 401(k), etc.)
  3. Types of Plans
  4. Plan Operations
  5. Plan Design
  6. Correcting Plan Errors

Invest in LLC’s With a Self-Directed IRA

LLCs

Use a Self-Directed IRA to Invest in Limited Liability Company (LLCs)

Invest in LLC'sAn LLC is a legal organization that provides the advantages of a partnership while limiting legal liability of the individual partners the same way a corporation does. LLCs can be a great way to partner to purchase investments, and you can use a self-directed IRA to invest in LLCs. LLCs are considered securities in some states and may be required to meet the standards of securities offerings.

LLCs Can Be a Great Way to Partner to Purchase Investments