Retire Safe & Tax Free - Prohibited Transactions and IRAs

Know the Rules

Prohibited transactions can trigger dire tax consequences with respect to your IRA funds. If you fail to follow the rules set forth by the IRS, your IRA assets may be subject to additional taxes and penalties. You also risk the possibility that the entire IRA may be deemed disqualified and immediately taxable! Be careful not to offset the tax advantages of your retirement savings by engaging in a prohibited transaction.

So, what is a prohibited transaction?

A prohibited transaction is any improper use of your traditional IRA funds or annuity by a disqualified person. Disqualified persons include the IRA owner, the owner's spouse, the owner's lineal descendants (and their spouses), IRA beneficiaries and any IRA fiduciary.

An IRA fiduciary includes anyone who exercises discretionary authority or discretionary control in managing or disposing of the IRA assets, anyone paid a fee to provide investment advice to the IRA (or has the authority or responsibility to) and anyone with discretionary authority or discretionary responsibility in administering the IRA.

Here are a few common examples of traditional IRA prohibited transactions:

  • Using an IRA as collateral for a loan
  • Using IRA funds to purchase property for personal use
  • Receiving unreasonable compensation for managing the IRA
  • Borrowing money from the IRA
  • Selling property to the IRA

Contact: Marc H. Weiss, Archer Weiss Insurance and Financial Services

(818) 610-8560