Who is Considered a Disqualified Person? (Infographic)

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 (children, parents, etc.)
• The spouses of your lineal descendants
• 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

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:

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. 

If a transaction appears to benefit you beyond the scope of your retirement account, you may want to consult a CPA or tax advisor.

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

1. Hiring your son to paint a Real Estate IRA rental property.
2. Take 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.