Self-Directed IRA Prohibited Transactions – An Overview

Establishing a self-directed retirement account is easy. But if you are new to Self-Directed IRAs and other retirement accounts, it behooves you to understand what you can and cannot invest your Self-Directed IRA assets.

Self-Directed IRAs are very flexible. Investors are attracted to Self-Directed IRAs because they allow them to free themselves from the relatively modest returns available from Wall Street products and diversify into alternative asset classes such as direct ownership of real estate, oil and gas, private lending, gold and precious metals, and many others.

The law does not restrict Self-Directed IRA investors to stocks, bonds, mutual funds or any other conventional financial product. You can invest your Self-Directed IRA funds in just about anything you like, with just a few exceptions:

  • Life insurance (but annuities are ok).
  • Jewelry and gemstones.
  • Certain kinds of precious metal coin and bullion of uncertain or inadequate purity.
  • Art and collectibles.
  • Wine collections and other alcoholic beverages.

The Internal Revenue Code Sections 408 & 4975 prohibits IRAs from transacting directly with “disqualified persons” (as defined under Code Section 4975(e)(2)), and similar rules govern Self-Directed 401(K)s and other tax-advantaged savings vehicles.

What does this mean? In a nutshell, Sections 408 and 4975 prohibit IRAs from buying or borrowing from or selling or lending to any of these persons:

  • The account owner.
  • The account owner’s spouse.
  • The account owner’s direct descendants and ascendants or those of his or her spouse.
  • Anyone who serves the account owner in a fiduciary capacity and provides advice concerning the Self-Directed IRA or other retirement account.
  • Any entities controlled by any of the above.

This also means you cannot try to use your Self-Directed IRA to benefit yourself or your immediate family, any other prohibited counterparty, by taking a salary, hiring your son-in-law to manage a property, or pay finder’s fees or any other form of compensation to a spouse, parent, child, grandchild or any corporations or LLCs they control.


The penalties for violating Self-Directed IRA prohibited transaction or prohibited counterparty laws are severe: You risk having the IRS disallow the favorable tax treatment of the entire account, potentially resulting in immediate income tax liability and any applicable penalties for early withdrawal if you are younger than age 59½ for IRAs.

American IRA is sensitive to the prohibited transaction issue. For that reason, every transaction we engage in on our clients’ behalf is reviewed for compliance with prohibited transaction and prohibited counterparty rules.

Many investors have found that besides enjoying the diversification benefit of alternative asset classes and opportunities for market-beating returns when stock markets are weak, they can also realize substantial savings in fees as a result of our simple, cost-effective fee-based menu of services.

With American IRA, you are not charged a high percentage of your assets under management even when you make few or no transactions. Instead, you pay only for the services you use, as you use them, transaction by transaction. By adopting a menu-based pricing system, American IRA, LLC routinely saves buy-and-hold investors thousands of dollars per year in AUM fees and commissions.

Though our offices are in Asheville and Charlotte, North Carolina, we serve successful, entrepreneurial and out-of-the-box thinkers all around the country.

Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at