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 Self-Directed 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 Self-Directed 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 Self-Directed IRA, nor borrow from it.
  • No prohibited individual can buy assets from or sell assets to your Self-Directed IRA, nor may any entity they control.
  • No prohibited individual can buy or sell services directly from or to your Self-Directed IRA, nor may any entity they control.
  • Neither you nor any prohibited individual can use Self-Directed IRA assets for their own benefit. For example, they cannot stay overnight in a property owned by your Self-Directed 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.

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