Guide
Prohibited transactions and disqualified persons
The line a self-directed account cannot cross — and who counts as family.
A self-directed account’s freedom comes with a firm boundary: the account cannot transact with certain disqualified persons, and cannot be used for the owner’s personal benefit today. Cross that line and the entire account can lose its tax-advantaged status.
The core rule
A retirement account exists to benefit you in retirement — not to provide a present-day benefit to you or your family. Transactions that blur that line are prohibited transactions.
Who is a disqualified person
- You, your spouse, your ascendants and descendants (parents, children) and their spouses.
- Entities you or other disqualified persons control, generally at 50% or more.
- Fiduciaries and certain service providers to the account.
Notably, siblings, cousins, and friends are generally not disqualified persons — but confirm the specifics before relying on that.
Common prohibited transactions
- Buying property from, or selling property to, a disqualified person.
- Personally using an asset the account owns, such as staying in an IRA-owned vacation home.
- Lending to or borrowing from the account.
- Paying yourself to manage account-owned property (“sweat equity”).
- Personally guaranteeing a loan to the account.
Consequences
A prohibited transaction can be treated as a full distribution of the IRA as of the first day of the year it occurred — taxes and potential penalties on the entire balance. The stakes are high, which is why caution matters. Requires legal review
Staying compliant
Keep the account and your personal finances strictly separate, route all income and expenses through the account, and get professional review before any transaction involving family or entities you control.
FAQ
Can my IRA buy a rental property?
Yes, but you cannot use it personally, and all income and expenses must flow through the IRA.
Can I do repairs myself?
Performing services for account-owned property can be a prohibited “sweat equity” transaction. Hire third parties.
Does the custodian check this for me?
No. A custodian processes transactions you direct; it does not vet them for prohibited-transaction issues.
Sources include the Internal Revenue Service and U.S. Department of Labor. This guide is general information, not tax or legal advice; confirm specifics with a qualified professional.
Educational only. This page is general information, not individualized investment, legal, or tax advice. Rules depend on your account type, transaction, tax year, and circumstances — consult a qualified professional.