Prohibited Transactions and Disqualified Persons in a Self-Directed IRA

The Self-Directed IRA can be one of the most transformative tools any investor employs in their quest for a secure retirement. But while taking advantage of the tax protections in an IRA to invest in alternative retirement assets like precious metals and real estate can be incredibly freeing, it is important to recognize that there are also restrictions in retirement accounts—and those restricts are important to pay attention to if you do not want to be hit by steep penalties.

That is why we have taken the time to compile some of the common prohibited transactions and disqualified persons rules in the Self-Directed IRA. The more you know about your limits, the better you will be able to experience the freedom that comes with investing through a Self-Directed retirement account:

Prohibited Transactions in a Self-Directed IRA

What do we mean by prohibited transactions? These refer to those types of investments you will be expected not to make when you are using a Self-Directed IRA. Remember: while you can use an IRA for a wider variety of investment classes than stocks and bonds, there are some strictly-regulated and prohibited transactions you will need to avoid, including:

  • Alcoholic beverages. Wine is a particularly popular investment, as it keeps well, and rare wines can increase in value over time. But investors cannot use a Self-Directed IRA to protect wine investments, or any alcoholic beverages for that matter.
  • Life insurance. Putting a life insurance policy within a Self-Directed IRA is not possible.
  • Some precious metals. When you do invest in precious metals within a Self-Directed IRA, it is important to work with a reputable dealer and to double-check that the specific bullion or coins you are purchasing are in line with approved metals for an IRA.
  • Antiques and similar items could fall under the category of “collectibles,” making them prohibited transactions for the purposes of investing with a Self-Directed IRA.
  • Fine art is a popular investment for those who want to diversify their assets out of the stock market and other assets tightly tied to the global economy. However, these investments will have to be made without the tax protections of the Self-Directed IRA.
  • Using a Self-Directed IRA for loan collateral is another type of prohibited transaction. Sheltering retirement investments from outside influences also means sheltering them from the possibility of being collected after defaulting on a loan. Since collateral is not the purpose of IRAs, any such transaction would be strictly prohibited.

There is a great deal of freedom within an IRA to invest in the type of assets you want to own—but it is important to keep the above in mind before you get started.

Disqualified Persons in a Self-Directed IRA

In addition to prohibited transactions, there are prohibited individuals who are not allowed to take part in an IRA. What does this mean exactly? Let’s break it down:

  • You, your spouse, and descendants/ascendants or any entities they control can lend to your Self-Directed IRA or borrow from it.
  • Prohibited individuals cannot buy or sell assets directly to your Self-Directed IRA—including any entity they control.
  • The same rule as above applies to the buying or selling of services.
  • Using Self-Directed IRA assets for direct personal benefit—such as living within a house owned by the IRA—is strictly prohibited, and this rule applies to you, your spouse, and descendants/ascendants.

Understanding the limitations of the Self-Directed IRA maybe is not the most fun part of developing your own retirement strategy. But it is integral if you are going to do it the right way and ultimately take advantage of the fantastic opportunities offered within self-direction.

For more information on prohibited transactions and disqualified persons within a Self-Directed IRA, continue reading the information here at or call us at 866-7500-IRA.