EDUCATION CENTER

Why use Guidant Financial Group?

We are dedicated to pioneering access to alternative investments by providing the information, tools and investments that can help our clients achieve their full financial potential.

Helpful Links

Self-Directed IRA Prohibited Transactions Explained

EMAIL TO A FRIEND

Download PDF Version

When it comes to self-directed investing, there are self directed IRA rules. The most frequently asked questions are about what kinds of investments and transactions are acceptable and which are not. Both the Internal Revenue Code and ERISA have sections pertaining to “self dealing” and “prohibited transactions.” Most prohibited transactions are the result of commerce between your retirement account (the plan) and a “disqualified party.” Before we explain prohibited transactions, we should clarify what a “disqualified party” (sometimes referred to as a “party of interest”) is:

In regards to an IRA, a disqualified party is:

The IRA owner or the spouse of the owner
The IRA owner’s lineal descendants (children and grandchildren) and ascendants (parents and grandparents)
Any entity (corporation, estate, partnership) that has a combined ownership greater than 50% by any of the disqualified personages
A 10% owner, officer, director or highly compensated employee of such an entity
A fiduciary of the IRA or person providing services to the IRA (custodian or trustee)

The goal or intention of a retirement plan is to benefit the retirement account holder upon retirement and not any time before. Because of this, prohibited transactions are mainly in place where your plan is benefiting a disqualified party now, rather than later.

Your retirement account cannot, directly or indirectly, sell, exchange or lease any property to or with you or a disqualified party. Some examples of prohibited transactions include (but are not limited to):

Using your retirement plan to buy a home for you to live in now
Pledging assets of your retirement as collateral for a loan
Selling personal investment property to your IRA
Buying collectibles such as rugs or gems with retirement funds
Loaning money to your child
Owning/purchasing stock in an S corporation
Paying yourself fees from cash flow (i.e., rental income) derived from your plan’s investments
Using your Traditional IRA to benefit your Roth IRA
The purchase of life insurance

When you examine this list, you discover that there are numerous ways in which you can still maximize your retirement account’s potential without violating the rules that govern this industry. Working with an experienced retirement account specialist, such as Guidant, should ensure that your IRA is structured correctly and can ultimately satisfy your long-term objectives. Keep in mind that facilitators of this type of structure can vary in service offerings and the way in which accounts are set up. So don’t be afraid to ask the tough questions to make sure the model and services are what are best for you.

More Information: Self Directed IRA LLC & Small Business Financing