Transactions to Avoid in a Self Directed IRA

The first thing to understand about self directed IRAs is that they are regulated by exclusive, rather than inclusive, rules. This works to your advantage because the list of what you cannot invest in with an IRA is much shorter than what you can.

It’s important to understand what you cannot invest in with a self directed IRA because if you do, you can lose the tax-deferred status of your account and incur taxes and substantial penalties. This would erase any gains you have earned by the account being disqualified.

Generally, there are two types of transactions an IRA should avoid— prohibited transactions and prohibited investments.  Let’s examine each.

Prohibited IRA Transactions

Prohibited transactions have to do with intent, as in those transactions that run afoul of what the account is intended for, your future retirement. Any action or transaction that can be construed as providing you with direct use or benefit is not allowed.

Prohibited IRA transactions include:

• Personally borrowing money from the IRA
• Selling, leasing or exchanging property to the account
• Accepting unreasonable compensation for managing property or assets held by the IRA
• Using the account as security for a loan
• Granting account fiduciaries to obtain, use or borrow against account assets for their own gain
• Transferring plan assets, lending money, or providing good and services to disqualified persons*

* Disqualified Persons: For Plan purposes, disqualified persons is defined as the account holder and his or her spouse, lineal descendants, account fiduciaries, trustees, investment managers and advisers; and any corporate entity in which the account holder has at least a 50 percent ownership.

For the complete list of prohibited transactions, see IRC Section 4975.

Prohibited IRA Investments


Following is a list of what you cannot invest in with an IRA under IRC 408. Practically everything else is allowed, which makes for a wide range of investment opportunities.

• Collectibles such as artwork, coins, stamps, rugs, antiques, beverages and other personal property
• S-corp stock
• Gemstones and metals (except for certain U.S. coins and bullion which are allowed)
• Insurance contracts

See IRS Publication 590 for a complete list of prohibited investments.

The IRS does not want to interfere with your investment decisions. These guidelines are simply to ensure that you understand which investments you can’t make, and which liberties you can’t take with your IRA funds.

As long as you follow these few simple rules, you can direct your IRA account the way you see fit – toward the future you envision.