Understand prohibited transactions to make the most of your self-directed IRA.

A self-directed IRA gives you more investment options and flexibility than many other retirement accounts. However, the IRS prohibits certain transactions — and restricts the way you can use your investments.

As your self-directed IRA custodian, we want to make sure you are aware of these rules and regulations — so you can maintain the tax-advantaged status of your account.

Conducting any prohibited transaction, even unintentionally, will result in your account losing its qualified tax-protected IRA status. You will have to pay taxes plus additional penalties.

Keep in mind, your IRA retirement plan can't conduct transactions which benefit you, your beneficiaries or other disqualified persons, or your business. This is called "self-dealing" and it is not allowed.

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Basic Examples

You can't hold real estate or property that you or other disqualified persons live in, plan to live in, or use in any way while that property is held in your retirement account.

You cannot purchase private equity shares of your own business (or that of any other disqualified person).

You cannot loan money to yourself or other disqualified persons from your IRA or other tax-advantaged retirement account.

You cannot make "stepped transactions," that is, a series of transactions that circumvent tax laws on purpose or accidentally. For example, you can't loan money from your IRA to your brother (who's not a disqualified person), who then loans that money to his wife, who then loans it to you.

At Pacific Premier Trust, you cannot invest in:

  • Collectibles, such as art, antiques, stamps, gems, rugs or anything else the U.S. Treasury Department deems to be a collectible
  • Life insurance
  • The stock of a Sub-Chapter S Corporation (Solo(k) plans can invest in an S Corporation)
  • Viatical settlements (sales of life insurance policies to a third party)
  • General partnerships

Disqualified Persons

The same rules that apply to you and your IRA also apply to "disqualified persons." These include your parents, grandparents, children and grandchildren, plus their spouses and your fiduciary.

The IRS defines a fiduciary as anyone who:

  • Exercises any discretionary authority or discretionary control in managing your IRA or exercises any authority or control in managing or disposing of its assets 
  • Provides investment advice to your IRA for a fee or has any authority or responsibility to do so 
  • Has any discretionary authority or discretionary responsibility in administering your IRA 

Considered Disqualified Persons:

  • The trustee of the trust
  • Grandparents
  • Parents
  • Spouse
  • Children/adopted children and their spouses
  • Grandchildren and their spouses
  • A fiduciary (see definition above)
  • A person providing services to the plan, such as a CPA or an attorney
  • Companies owned by disqualified parties

Not Considered Disqualified Persons:

  • Step-grandparents
  • Stepparents
  • Spouses’ parents
  • Aunts, uncles, and cousins
  • Siblings and stepsiblings
  • Stepchildren and their spouses

IRS Code Section 4975

The information provided here is for general information purposes only. Pacific Premier Trust does not provide tax advice and IRS rules may change on short notice.

When investing through any retirement account, you should consult a tax specialist or review the official IRS publications at irs.gov to make sure you are making the best decisions for your situation — based on the most up-to-date information available.

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