IRS Rules
Disqualified Persons
Disqualified Persons in a Self Directed IRA LLC
A prohibited transaction occurs when an IRA asset is used improperly by the IRA owner, their beneficiary, or any disqualified person. There are substantial penalties for engaging in a prohibited transaction, making it critical to understand the IRS’s rules regarding prohibited transactions and disqualified persons.
The Takeaways
- A Disqualified Person is a Self-Directed IRA account holder (or other close relation) whose interaction with the IRA is severely limited.
- Disqualified Persons include the account holder, linear relatives like parents and children, or an account fiduciary.
- Improper interaction between a Disqualified Person and the Self Directed IRA is known as a Prohibited Transaction.
Who is a disqualified person?
A disqualified person includes any individual directly related to the IRA plan’s owner in a vertical fashion (e.g. parents, grandparents, spouse), as well as anybody with a substantial connection to the plan in question.
| Individual Transacting with IRA LLC | Disqualified Person |
|---|---|
| Self Directed IRA LLC owner and his/her spouse | Yes |
| Ancestors, such as parents and grandparents | Yes |
| Step Parents | Yes |
| Aunts and Uncles | No |
| Descendants, such as children and grandchildren, and their spouses | Yes |
| Nieces, nephews, and cousins | No |
| Adopted children | Yes |
| Fiduciary of the Self Directed IRA LLC and anyone else that provides services to the account/plan (e.g. accountant or financial advisor) | Yes |
| Any entity (e.g. corporation, partnership, LLC) that is owned 50% or more, singularly or collectively by disqualified persons | Yes |
| A disqualified entity’s officiers, directors, highly-compensated employees, and other owners (owning 10% or more) | Yes |
For a complete list of disqualified persons, see Section 4975 of the Internal Revenue Code.
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Speak to a Self Directed IRA LLC expert at IRALLC.com to discuss any questions or concerns involving disqualified persons. It is also highly recommended to speak to a legal advisor before engaging in a transaction through your IRA LLC.
