Can a prohibited transaction affect my ability to take distributions?
Yes, and the consequences are severe. If the IRS determines your account engaged in a prohibited transaction, it can disqualify the entire IRA. When that happens, the full fair market value of the account is treated as a taxable distribution in that year, triggering income tax on the entire balance plus the 10% early withdrawal penalty if you're under 59½. This is one of the most costly mistakes in self-directed IRA management, and it's why understanding prohibited transaction rules matters before you make any investment decision.
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