RESOURCES

IRS Rules and Regulations

Self-directed account holders can yield considerable tax benefits from retirement and savings plans, but you must follow IRS rules and regulations in the process. As long as you and your account remain compliant with the Internal Revenue Code, your self-directed account can grow unabated.

How do you know if you are in compliance?

With all the benefits that self-directed accounts offer, investors must be aware of the unique limitations related to these account types, primarily around prohibited transactions. While the IRS does not state what you can do with your funds, they are clear on what you cannot do.

Below we provide a brief overview of the rules and relevant definitions found in Internal Revenue Code, Section 4975.

What is a Disqualified Person or Entity?

A disqualified person or entity is used to describe certain individuals or entities who are not allowed to do business with tax-advantaged plans. The reasoning for this limitation is these entities would benefit from the account’s funds, bypassing contribution and withdrawal limits, through receipt of economic benefit.

While this specific list is not exhaustive, it does provide general principles regarding who can and cannot do business with a self-directed IRA, Solo 401(k), or Health Savings Account.

Please contact NDTCO for additional information. 

 

What is a Prohibited Transaction?

The IRS defines prohibited transactions as any sale, exchange, or lease of property or asset between a plan and a disqualified person or entity. Any transfer or furnishing of goods or funds between a plan and a disqualified entity is equally prohibited.

The account cannot conduct any business with a disqualified entity, thus preventing misuse and abuse of tax-advantaged funds.

Who are Non-Disqualified Persons?

The IRS does not consider siblings, their spouses, aunts, uncles, or cousins to be disqualified persons, so you can do business with them on your tax-advantaged plans as you wish. 

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