What is a prohibited transaction?
While your self-directed IRA account offers considerable freedom and a wide array of alternative allowable investments, it's important to note that, despite its flexibility, there are certain limitations to consider.
Self-directed IRAs must adhere to Internal Revenue Service (IRS) rules to maintain their pre-tax or tax-deferred status and avoid penalties. Some self-directed transactions may jeopardize your IRA's intent and lead to risks and penalties, particularly those perceived as providing immediate personal financial gain to you or disqualified persons. The IRS explicitly defines these prohibited transactions in Internal Revenue Code (IRC) 4975.
It is crucial to be aware of the rules and regulations governing self-directed IRAs and to consult with a qualified tax professional or financial advisor before making any investment decisions within yourself-directed IRA.
Examples of transactions that IRA owners are prohibited to engage in:
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