While self directed IRAs offer investors great flexibility in investment choices, the regulatory bodies responsible for overseeing these types of accounts have established certain
restrictions on the types of transactions an owner is allowed to conduct within an IRA. Violations of these guidelines have become known as Prohibited Transactions.
For instance, any transaction that can be construed as providing immediate personal financial gain to a self directed account holder
is not allowed, and is often referred to as ‘self-dealing’. Examples of self-dealing would include: borrowing money from your IRA, selling property to your IRA, receiving a current benefit outside the IRA from assets in the IRA, or using the IRA as security for a personal loan.
In addition, direct investments of self directed funds in any of the following categories are prohibited:
- Life insurance;
- Collectibles such as works of art, rugs, antiques, metals (other than gold, silver and palladium), gems, stamps, coins (except certain U.S. minted coins), alcoholic beverages, and other tangible property; and,
- Sub-Chapter S Corporations or any other categories as may be defined by the Secretary of the Treasury.
Examples of prohibited transactions with an IRA include: borrowing money from it; selling property to it; using it as
security for a loan; or buying property for present or future use with IRA funds.
For IRAs, a disqualified person is:
- The IRA holder and his or her spouse;
- The IRA holder’s ancestors, lineal descendants and their spouses;
- The IRA holder’s investment advisors and managers;
- Any corporation, partnership, trust or estate in which the IRA holder has a 50 percent or greater interest; and,
- Anyone providing services to the IRA such as the trustee or custodian.
Millennium Trust encourages IRA owners to consult with a tax advisor
prior to selecting any alternative investment.
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