Disqualified individuals include the IRA owner's trustee and family members (spouse, ancestor, linear descendant, and any spouse of a linear descendant). However, there are IRS rules that govern Solo 401 (k) plans. The IRS has restricted certain transactions between the Solo 401k plan and a “disqualified person.” The basis for these rules was the assumption of Congress that certain transactions between certain parties are inherently suspicious and should be rejected. To determine if a proposed transaction is a prohibited transaction and violates IRC 4975, it is important to examine all parties participating in the proposed transaction and not just the Solo 401k plan participant.
As a participant in the Solo 401k plan, when making an investment with a Solo 401k plan, it is recommended that you do not make any transactions with a disqualified person. There is plenty of case law that clearly states that a Solo 401k plan cannot make a transaction that directly or indirectly benefits a disqualified person. The direct or indirect sale, exchange or lease of property between a 401 k plan and a “disqualified person” The direct or indirect lending of money or other extension of credit between a 401 k plan and a “disqualified person” The direct or indirect supply of goods, services or facilities between a 401 k plan and a “disqualified person” who is a real estate agent uses the funds of your 401 (k) plan to buying a home and a commission on the sale. Derrick uses funds from his 401 (k) plan to lend money to a company in which he manages and controls, but in which he has a small stake.
At IRA Financial, we'll help you overcome the complexities of people disqualified under IRC Section 4975 (e) (to prevent a prohibited transaction from triggering). As you may already know, activating a prohibited transaction can result in high penalties and disqualification from your plan. If you have any questions or concerns about transactions with a potentially disqualified person, contact a specialist today at 800-472-0646 or complete our form. Sign up to stay up to date on everything related to self-directed retirement and how your investments are affected by current events and changes in the law.
Contact IRA Financial at 1-800-472-0646 or complete the form to learn more about opening a self-managed retirement account. Prohibited transactions are certain transactions between a retirement plan and a disqualified person. If you are a disqualified person participating in a prohibited transaction, you must pay a tax.