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.

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