In the previous post, disallowed investment
options for retirement plans were reviewed. In the trifecta of IRS regulations
governing these retirement plans, there are two (2) additional regulating
concerns that the plan must adhere to and not violate: 1) Participation of the
Retirement Plan (RP) in a Prohibited Transaction; and 2) Participation of the RP
in transactions with Disqualified Individuals. We will review Prohibitied
Transactions in this post.
Remember, this is educational in nature so as such it is intended for educational purposes only and are frequently asked questions regarding IRS regulations related to retirement plans...whether self-directed or traditional. It is information that is general in nature and should not be viewed as legal authority. But the goal is to provide you with some helpful (hopefully) information related to general issues. As they say, for professional assistance on specific tax questions and issues, you should always consult a tax professional Now, on to the fun stuff.
Legally speaking, a prohibited transaction is a transaction between an RP and a disqualified individual as prohibited by law. Okay, that may not really tell you much, huh.
Most individuals when considering establishing a self-directed RP understand what a disallowed investment is, but they get a glazed look in their eyes when they research prohibited transactions. Generally speaking, let's break these down:
1) A transfer of plan income or assets to, or use of them by for the benefit of a disqualified person;
2) Any act of a fiduciary by which plan assets are used for his/her own benefit;
3) The receipt of consideration by a fiduciary from his/her own account from any party dealing with the plan in a transaction that involves plan income or assets;
4) The sale, exchange, or lease of property between a plan and a disqualified person;
5) Lending, money or credit between a plan and a disquaified person; and,
6) Furnishing goods, services, or facilities between a plan and a disqualified person.
In the next post, we will look at disqualified individuals as the last part of the trifecta of....disallowed investments, prohibited transactions and disqualified persons.
John R. Park is President of PGI SelfDirected and co-founding Partner of Fulcrum Investment Network.
Remember, this is educational in nature so as such it is intended for educational purposes only and are frequently asked questions regarding IRS regulations related to retirement plans...whether self-directed or traditional. It is information that is general in nature and should not be viewed as legal authority. But the goal is to provide you with some helpful (hopefully) information related to general issues. As they say, for professional assistance on specific tax questions and issues, you should always consult a tax professional Now, on to the fun stuff.
Legally speaking, a prohibited transaction is a transaction between an RP and a disqualified individual as prohibited by law. Okay, that may not really tell you much, huh.
Most individuals when considering establishing a self-directed RP understand what a disallowed investment is, but they get a glazed look in their eyes when they research prohibited transactions. Generally speaking, let's break these down:
1) A transfer of plan income or assets to, or use of them by for the benefit of a disqualified person;
2) Any act of a fiduciary by which plan assets are used for his/her own benefit;
3) The receipt of consideration by a fiduciary from his/her own account from any party dealing with the plan in a transaction that involves plan income or assets;
4) The sale, exchange, or lease of property between a plan and a disqualified person;
5) Lending, money or credit between a plan and a disquaified person; and,
6) Furnishing goods, services, or facilities between a plan and a disqualified person.
In the next post, we will look at disqualified individuals as the last part of the trifecta of....disallowed investments, prohibited transactions and disqualified persons.
John R. Park is President of PGI SelfDirected and co-founding Partner of Fulcrum Investment Network.