Beware of IRA Transactions Prohibited by the IRS

No one wants to get taxed any more than absolutely necessary. That’s why you need to be aware of “prohibited transactions,” which 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 your entire IRA may be deemed disqualified and immediately taxable! So be careful not to offset the tax advantages of your retirement savings by engaging in a prohibited transaction.

What is a Prohibited IRA 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.

Common examples of 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.

About Marc Weiss

Marc’s investment career spans over 30 years. He specializes in retirement planning for retirees, business owners, television and motion picture personalities and healthcare professionals. His expertise includes investments, distribution planning, legacy transfer strategies, financial planning and insurance programs. Marc has also been featured on The Business Channel.