Self-directed investors should be aware of, and avoid any, Prohibited Transaction between the IRA and a Disqualified Person.
The following is a summary of what is contained in Section 4975 of the Internal Revenue Code that describes Prohibited Transactions, and tax implications, in detail.
PT: Lending money or engaging in some other extension of credit between an IRA and a Disqualified Person.
Example: You, the IRA account owner, cannot lend money from your IRA to yourself, your spouse or other disqualified person.
PT: Furnishing goods, services or facilities, directly or indirectly, between an IRA and a disqualified person.
Example: you cannot personally make an improvement to a rental property held by your IRA.
PT: Using the income or assets of your retirement account to benefit a disqualified person.
Example: You may not stay in a vacation property that is owned by your IRA.
PT: When a disqualified person, who is a fiduciary on the retirement account, uses the income or assets of his IRA in his own interest and for his own account.
Example: you cannot pay yourself income from profits generated from the rental property held by your IRA.
PT: Receiving any consideration by a disqualified person, who is a fiduciary for his account, from any party dealing with the IRA in connection with a transaction involving the income or assets of the plan.
Example: if the owner of the IRA is a real estate agent, IRA funds can be used to buy real estate however no commission can be paid to the IRA account owner/agent from the sale.