Self Directed IRAs The Long Reach of IRC 4975 Prohibited Transactions
By Lynn K. Ching An Individual Retirement Account (IRA), whether it be a traditional IRA, a Roth IRA or a Self Directed IRA is a tax-advantaged plan under the Internal Revenue Code (IRC), intended to encourage individuals to save for retirement. Self Directed IRAs are held by a trustee or custodian that permits investment in a broader set of assets than is permitted by traditional IRA custodians. To ensure that the IRA’s tax-preferenced assets are kept separate from the other assets of the IRA owner, the Internal Revenue Code contains a series of “prohibited transaction” rules intended to prevent the IRA owner from using the account to enrich themselves, their family members, or entities in which they retain an interest (“disqualified persons”). In general, IRC 4975 prohibits any direct or…