Be Aware Of Prohibited Transactions And Investments

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.