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[Infographic] Self-Directed IRA FAQ - Who is a Disqualified Person?

Self-directed IRAs are governed by complex regulations allowing you to use alternative investments to save for retirement. Entrust account owners are frequently asking questions to learn more about their self-directed accounts, as well as their alternative investment options. This infographic will explore one of those questions.

Question: Who is a disqualified person?

Answer: For the purposes of determining prohibited transactions through your self-directed IRA, the following people are considered disqualified persons:

  • You and your spouse
  • Your employer
  • Your lineal ascendants and descendants, as well as their spouses (children, parents, etc.)
  • Any person providing plan-related services (custodians, advisors, fiduciaries, administrators, etc.)
  • Any entity (business, corporation, partnership, etc.) of which you are at least 50 percent owner, whether directly or indirectly

 

Self-directed IRA due diligence

 

Explanation: In order to remain compliant when investing with your self-directed retirement funds, you must refrain from participating in transactions with disqualified persons. Doing so could lead to significant tax penalties. This rule is part of the “self-dealing” regulations, which prevent account owners from conducting business for the purpose of personal gain, rather than saving for retirement.

Determining who is a disqualified person and who isn’t can sometimes be difficult. This infographic helps give you a map to determine who you can and can’t make self-directed IRA transactions with:

Disqualified Persons in a self-directed IRA

Important note: There is one exception to this rule which allows you to partner with disqualified persons on the purchase of a new asset. Learn more about this strategy here: 5 Ways to Partner Your Self-Directed IRA

Here are three examples of prohibited transactions that involve disqualified persons:

  1. Hiring your son to paint a Real Estate IRA rental property.
  2. Taking physical possession of gold bars owned by your self-directed IRA.
  3. Renting out an IRA-owned property to your parents.

Learn more about prohibited transactions in this downloadable IRS document: Internal Revenue Code - Section 4975: Prohibited Transactions or visit our FAQs page.

Do you have any questions that you would like to see answered in future articles? Or in the comment section below? Just leave us a comment and we'll get right back to you!

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