Understanding Prohibited Assets

While self-directed IRAs provide access to a broader range of asset types, certain assets are not permitted in an IRA.

Examples of prohibited assets include:
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Life insurance contracts
Certain Collectibles, including artwork, rugs, antiques, gems, stamps, alcoholic beverages, and certain coins and other tangible personal property
S-corporation stock, because IRAs generally cannot be eligible S-corporation shareholders.

Certain qualifying gold, silver, platinum, and palladium coins and bullion are permitted when applicable requirements are met.

In addition to restrictions on the types of assets an IRA may hold, IRS rules prohibit certain transactions between an IRA and disqualified persons. This can include the account owner, certain family members, and other related parties.

Commonly held alternative assets

Real Estate: A self-directed IRA may hold residential and commercial property, undeveloped land, and other qualifying real estate. Income attributable to the IRA-owned property must be returned to the IRA, and expenses associated with the IRA's ownership must be paid from the IRA.
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‍Promissory Notes: A self-directed IRA may make loans to eligible individuals or entities or purchase certain existing promissory notes. Notes may be secured or unsecured. Principal and interest payments must be made directly to the self-directed IRA.

Private Entities: A self-directed IRA may hold interests in certain privately held entities, including LLCs, limited partnerships, private companies, private funds, and other qualifying private placements. The asset and transaction must meet applicable requirements.

‍Precious Metals: A self-directed IRA may hold certain qualifying gold, silver, platinum, and palladium coins and bullion that meet applicable requirements. Precious metals must be held in accordance with applicable custody and storage requirements.

‍Digital Assets: A self-directed IRA may hold certain digital assets, provided the asset and transaction meet applicable requirements. Mountain West IRA provides administrative and recordkeeping services but does not select, recommend, endorse, or evaluate digital assets.

Understanding Prohibited Transactions

IRS rules restrict certain transactions between a self-directed IRA and disqualified persons. These rules are intended to prevent the IRA from being used for the personal benefit of the account owner or other disqualified persons.

Disqualified persons generally include the IRA owner, the owner’s spouse, ancestors, lineal descendants and their spouses, certain fiduciaries, and certain entities in which disqualified persons have specified ownership or control.

A prohibited transaction may include a direct or indirect sale, exchange, lease, loan, extension of credit, or provision of goods or services between an IRA and a disqualified person. It may also include the use of IRA assets for the benefit of a disqualified person.
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Examples of transactions that may be prohibited include:

Buying property from or selling personally owned property to your IRA
Personally using or staying in property owned by your IRA
Lending IRA funds to yourself or another disqualified person
Personally performing repairs or other services for IRA-owned property
Personally guaranteeing a loan made to your IRA
Receiving compensation or other personal benefits from certain transactions involving your IRA

Prohibited transactions can result in significant tax consequences and may affect the tax-advantaged status of the IRA. The consequences depend on the circumstances and the parties involved.

Account owners are responsible for ensuring their transactions comply with applicable rules. Mountain West IRA does not provide tax or legal advice. Consult a qualified tax or legal professional before proceeding with a transaction if you have questions about whether it may be prohibited.
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Due Diligence Is the Account Owner’s Responsibility

Mountain West IRA provides administrative and recordkeeping services and processes transactions at the direction of the account owner. We do not select, recommend, endorse, research, evaluate, or perform due diligence on assets, sponsors, borrowers, or other parties involved in a transaction.

Account owners are responsible for conducting their own due diligence before directing a transaction. This may include reviewing the asset, transaction documents, individuals or entities involved, and other information relevant to the transaction.

When appropriate, consult a qualified financial, tax, or legal professional regarding your specific circumstances.

Frequently Asked Questions

Can I buy real estate with a self-directed IRA?

Yes. A self-directed IRA may hold a variety of real estate assets, including residential, commercial, and other qualifying properties. The property must be titled in the name of the IRA rather than in your personal name. Purchase funds must come from the IRA, income attributable to the IRA-owned property must be returned to the IRA, and property-related expenses must be paid from the IRA.

Can I live in or use a property my self-directed IRA owns?

No. You and other disqualified persons cannot personally use or live in property owned by your self-directed IRA. Doing so would be considered a prohibited transaction.

Who is a disqualified person under IRC § 4975?

Disqualified persons generally include the IRA owner, the owner’s spouse, ancestors such as parents and grandparents, lineal descendants such as children and grandchildren and their spouses, certain fiduciaries, and certain entities in which disqualified persons have specified ownership or control.

What happens if I engage in a prohibited transaction?

A prohibited transaction can result in significant tax consequences and may affect the tax-advantaged status of the IRA. The consequences can vary depending on the transaction, the parties involved, and other circumstances.

If you believe a prohibited transaction may have occurred, consult a qualified tax or legal professional to determine how the rules apply to your specific situation.

Can I store precious metals from my self-directed IRA at home?

No. Precious metals owned by a self-directed IRA must be held in accordance with applicable custody and storage requirements and cannot be stored at your home or in your personal possession.

Taking personal possession of IRA-owned precious metals may be treated as a distribution and could result in taxes and other consequences.

Can my self-directed IRA lend money to a family member?

A self-directed IRA cannot make a loan to a disqualified person. Disqualified persons generally include you, your spouse, your ancestors, your lineal descendants and their spouses, and certain other individuals or entities defined under IRC § 4975.

Loans to other individuals may be permitted, provided the borrower is not otherwise a disqualified person and the transaction complies with applicable requirements.

Can I do the repairs myself on my self-directed IRA's rental property?

No. You should not personally perform repairs, maintenance, or other services on property owned by your self-directed IRA, as doing so may result in a prohibited transaction.

Repairs and other services should be performed by an eligible third-party service provider, and expenses associated with the IRA-owned property must be paid from the IRA.

Self-Directed IRA Education, Everywhere You Are

From in-depth articles and video tutorials to quick tips and updates on social media, explore educational resources about self-directed IRAs, alternative assets, account requirements, and more.