Safeguard Your IRA: Avoid Costly Prohibited Transactions

Here’s something many seasoned investors don’t realize: even well-intentioned moves within an IRA can trigger devastating consequences—without warning.

If an IRA owner, their family member, or any “disqualified person” benefits improperly from retirement account activity, that’s a prohibited transaction—and the repercussions are severe. The IRS views such actions as a violation of the IRA’s intended purpose: long-term retirement savings.

What Counts as a Prohibited Transaction?

Imagine thinking you’re being savvy—but unknowingly crossing the line by:

• Borrowing from your own IRA
• Selling property to your IRA (or vice versa)
• Using IRA funds as collateral for a personal loan
• Owning a property within the IRA and then renting it to your children
• Investing IRA funds in a business you control

Each of these examples involves a disqualified person—and that’s enough to trigger penalties.

The Cost of a Misstep

If a prohibited transaction occurs—even unintentionally, the IRS deems the entire IRA distributed as of January 1 of that year. This can mean:

• Full income taxation on the account
• A potential 10% early withdrawal penalty (if you’re under age 59½)
• A 15% penalty on the transaction amount
• If uncorrected within the same tax year, an additional 100% penalty may apply.

Protect Yourself: Keep These Principles in Mind

• Exclusive Benefit Rule: Your IRA must solely benefit you—and nobody else. Never use IRA funds for self-dealing or family perks.
• Never Mix Personal with Retirement Funds: Even “fair-market rent” agreements—or using your IRA property personally—can trigger disqualification.
• Beware of Too-Good-to-Be-True Promises: Take great care with anyone claiming IRS-approved “strategies”—the IRS doesn’t approve IRA investments or transactions.

You’re not just protecting a retirement account—you’re safeguarding years of disciplined planning, often the cornerstone of your financial legacy.

To help you stay informed, we’ve crafted a hands-on free guide: “Protecting an IRA from Prohibited Transactions in 5 Easy Steps.” Click the button below to download it.

Your Customized Professional Option

If you’re unsure whether a specific investment or strategy potentially crosses a line, don’t hesitate to reach out. As your fiduciary advisors, we’re committed to protecting your wealth—and preserving the integrity of your long-term plan. We’re independent and fee-only with a simple, easy-to-understand fee structure for your peace of mind.

Financial Success Doesn’t Happen by Chance

Schedule time for a call at 940-464-4104 or a free online consultation RFGWealthAdvisory.com.

Stay strategic. Stay protected.