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When you are making investments in your self directed IRA, is very important to understand what constitutes a prohibited transaction. If your transaction is prohibited, it can jeopardize the tax-deferred status of your account. If this occurs, there are serious tax consequences.
There are two types of prohibited categories, prohibited investments and prohibited transactions.
The following investments are not permissible. These investments include:
• Rugs
• Artwork
• Metals
• Antiques
• Stamps
• Gems
• Coins
• Beverages
• Certain other tangible personal property
Prohibited Transactions generally deal with improper use of your IRA or annuity by you, and disqualified persons that can include your fiduciary, beneficiary or members or your family. These transactions include:
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A transfer of assets or plan income for use or the benefit of a disqualified person. |
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Any act of a fiduciary whereby they manage the plan income or assets to his or her own interest. |
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The receipt by a fiduciary from any party dealing with the plan that involves plan income or assets. |
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Any act between the plan and a disqualified person selling, exchanging or leasing property or lending money, credit for furnishing goods, services or facilities. |
The following persons are disqualified if they are any of the following:
| 1. |
A fiduciary of the plan. |
| 2. |
A person providing service to the plan. |
3.
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An employee organization, trust or estate whose members are covered by the plan. |
| 4. |
A corporation, trust, estate or partnership that is the direct or indirect owner (50% or more), of the voting power of; |
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• All classes of stock
• The capital interest of a partnership of the service provider or employee organization.
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| 5. |
The beneficial interest of a trust or unincorporated enterprise that is an employee of the service provider or employee organization. |
| 6. |
A member of the family including the spouse, ancestor, lineal descendant or spouse of the lineal descendant |
| 7. |
A director or officer, 10% shareholder or a highly compensated employee of 3, 4, or 5. |
| 8. |
A 10% or more partner or joint venturer of a person described in 3,4 or 5. |
The initial tax is 15% of the amount involved for part of the year or year involved. If the transaction is not corrected that is an additional tax of 100%. Both taxes are due by the disqualified person, but not the fiduciary. If there is more than one person acting in the transaction they can be jointly liable for the entire tax. The amount involved in transactions if greater than the money or fair market value of the property or services that were rendered.
For more information, consult the Department of Treasury, Internal Revenue Service Publication 560 Retirement Plans for Small Businesses listed under Publications.
TRUST does not sell investments nor provide investment advice, and all transactions are at the direction of the accountholder and/or their designated financial representative. Investment products are not FDIC insured, not guaranteed by the bank and may lose value. |
