PLEASE NOTE: 5498 Tax Forms are now available in the Client Portal
Forge Trust
PLEASE NOTE: 5498 Tax Forms are now available in the Client Portal
PLEASE NOTE: 5498 Tax Forms are now available in the Client Portal
Protect The Tax-Advantages Of Your Self-Directed IRA

Be Aware Of Prohibited Transactions And Investments

Don't break IRS rules

There are IRS restrictions called Prohibited Transactions, which are transactions made through self-directed IRAs that break IRS rules. To maintain the tax advantages of using your IRA funds, be careful not break these IRS rules as that can be costly and have serious consequences.

There are three types of Prohibited Transactions:

  1. Per se prohibited transaction - Occurs when an IRA engages in transactions with a disqualified person
  2. Extension of credit prohibited transaction - Occurs when a disqualified person extends credit to an IRA
  3. Self-dealing prohibited transaction - Occurs when a disqualified person benefits directly from an IRA’s investments.

Plus: The law DOES NOT ALLOW three types of investments in an IRA:

  1. Collectibles – this includes any: work of art, rug or antique, certain metals or gems, stamps or certain coins, any alcoholic beverage, any other tangible property the IRS determines “collectible” under IRC Section 408(m)
  2. Life Insurance – Internal Revenue Code 408 (a) (3) prohibits an IRA from investing in life insurance contracts
  3. S-Corporations – an IRA is not a permitted shareholder of an S-Corporation under Revenue Ruling 92-73

Understand and follow IRS rules to protect the tax-advantaged status of your IRA and its assets.

Severe tax consequences can result from breaking IRS rules including:

  • The IRA will be disqualified and the IRA owner may incur taxes and penalties.
  • The IRA account will be distributed based on fair market value of the assets in the year the prohibited transaction occurred. Distributions of the IRA may be subject to applicable taxes and tax exemptions are revoked leaving the IRA owner with tax obligations on income and capital gains.
  • A 10% early withdrawal penalty is applied on all pre-tax withdrawals from a Roth IRA, if the IRA owner has not reached 59 ½ years of age.

At Forge Trust we understand the IRS rules imposed on self-directed IRAs. And as your custodian we can make you aware of prohibited transactions.

Disqualified Persons

Who is considered a disqualified person?

  • The IRA account owner
  • Members of the IRA owner’s immediate family including spouse, children and their spouses, grandchildren and their spouses, the owner’s parents and grandparents
  • Any entity in which the IRA owner, family member, or business partner has a majority interest
  • Any entity in which the IRA owner, family member, or business partner is an officer, director or highly compensated employee
  • The IRA account fiduciary – who is anyone who exercises any discretionary authority or control in the IRA, anyone who provides investment advice to the IRA for a fee or has any authority or responsibility to do so, anyone who has any discretionary authority or responsibility in administering the IRA

Getting started is easy.

Open. Fund. Invest.

Open an Account

Have a question? Call us at (800) 248-8447.