Prohibited Transactions (IRAs)

Generally, a prohibited transaction is any improper use of your traditional IRA account or annuity by you, your beneficiary, or any disqualified person.

Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of a lineal descendant).

The following are examples of prohibited transactions with a traditional IRA.

  • Borrowing money from it.
  • Selling property to it.
  • Receiving unreasonable compensation for managing it.
  • Using it as security for a loan.
  • Buying property for personal use (present or future) with IRA funds.

 

Fiduciary.   For these purposes, a fiduciary includes anyone who does any of the following.

  • 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.

 Prohibited Transactions (SEP, SIMPLE and QUALIFIED PLANS)
A prohibited transaction is a transaction between a plan and a disqualified person that is prohibited by law.
Prohibited transactions generally include the following transactions:

  • a transfer of plan income or assets to, or use of them by or for the benefit of, a disqualified person;
  • any act of a fiduciary by which plan income or assets are used for his or her own interest;
  • the receipt of consideration by a fiduciary for his or her own account from any party dealing with the plan in a transaction that involves plan income or assets;
  • the sale, exchange, or lease of property between a plan and a disqualified person;
  • lending money or extending credit between a plan and a disqualified person; and
  • furnishing goods, services, or facilities between a plan and a disqualified person.

Certain transactions are exempt from being treated as prohibited transactions. For example, a prohibited transaction does not take place if a disqualified person receives a benefit to which he or she is entitled as a plan participant or beneficiary. However, the benefit must be figured and paid under the same terms as for all other participants and beneficiaries.

The Department of Labor (DOL) has granted class exemptions for certain types of investments under conditions that protect the safety and security of the plan assets. In addition, a plan sponsor may apply to the DOL to obtain an administrative exemption for a particular proposed transaction that would otherwise be a prohibited transaction.

For additional information, see Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans).
Source:  www.irs.gov/retirement/article/0,,id=163722,00.html