The IRA Rules Simplified

Two key terms you’ll want to remember about Self-Directed IRA investing are ‘self-dealing’ and ‘prohibited transactions’. In general terms, self-dealing refers to a transaction that can provide you with a financial benefit, instead of your IRA, which is a no-no. A prohibited transaction is any improper use of your IRA by you or anyone the IRS has defined as a disqualified person (i.e. parties related to your IRA).

The IRA guidelines allow you to invest your IRA savings in almost anything, with the exception of collectibles and life insurance contracts.

With Whom Can Your IRA Make an Investment

The following chart depicts parties related to your IRA and those not related to your IRA. Your IRA can make allowable investments with non-related parties only. Please keep in mind that a related party is not the same as a relative within the IRA guidelines.

Below are common types of prohibited transactions between a related party (disqualified person) and an IRA which should always be avoided.

• Borrowing money from the IRA
• Selling, exchanging, or leasing property to the IRA
• Receiving compensation for managing property held by the IRA
• Using the IRA as security for a loan
• Transferring plan income or assets to disqualified persons