Who is

disqualified?

Section

4975 of the Internal Revenue Code defines prohibited transactions.  Generally, they are transactions that

directly or indirectly benefit the owner of the IRA or 401(k).  The owner of the account is a disqualified

person – you.  Also included are your

spouse, parents, grandparents, children, spouse’s children, any fiduciary of

the plan, and any person providing services to the plan.  Also disqualified would be any company or

entity where you, the plan owner, have more than 50% interest.

What is a

prohibited transaction?

A

prohibited transaction is a transaction (sell, exchange, lease, lend, services,

asset transfer, use of income) with a disqualified person.

Who is not

disqualified?

Brothers

and sisters are ok.  Also included are your

spouse’s brothers and sisters, you spouse’s parents, your spouse’s

grandparents, your stepchildren, your spouse’s stepchildren (except your

children!) your aunts, uncles and cousins. 

Isn’t this fun?

One

of the best charts I have found on these topics is found on page 132 of Pat

Rice’s book on IRA wealth.  You should

all own this book:  IRA Wealth:

Revolutionary IRA Strategies for Real Estate Investment, Patrick Rice

.  It is one of the early and most useful places

to get you going on the possibilities of IRA investing.  The book does not cover 401(k) topics,

however.  It is available at all the

usual places, including Pat’s website https://www.iraresource.com.

So what does

all this mean?

It

is your self-directed fiduciary responsibility to invest your retirement

dollars for the greatest return.  The intent

of the retirement account is not to benefit you now, but later in your

retirement years.  So do not go out to

the ocean purchase a house for personal vacation use, or make loans to your

kids for college.  Be wise in your

investments, grow your account and stay out of trouble with the IRS.