For the full rules, including who counts as a disqualified person, how consequences differ between an IRA and a Solo 401(k), and what IRC Section 4975 actually says, see Prohibited transactions.
Two rules that override intuition
Before the examples: two principles that apply to every scenario below.
Fair market value doesn't make a prohibited transaction acceptable. If a transaction is between your plan and a disqualified person, the price is irrelevant. Paying or charging exactly what the market would bear doesn't change the outcome. The transaction is still prohibited.
Indirect transactions count the same as direct ones. If a disqualified person benefits from a transaction, even through an intermediary, the IRS treats it as a direct transaction. There is no cooling-off period or workaround that creates acceptable distance.
Property transactions
Selling a property you currently own to your IRA
Prohibited. You are a disqualified person. Any sale, exchange, or transfer of property between you and your plan is prohibited under IRC Section 4975(c)(1)(A), at any price.
Buying a property from a parent, grandparent, or child
Prohibited. Lineal family members, ancestors and descendants, are disqualified persons. This applies in both directions: your plan cannot buy from them, and they cannot buy from your plan.
Buying a property out of the estate or trust of a deceased lineal family member
Prohibited. The disqualified status of a lineal family member does not end at death. An estate or trust holding assets on behalf of, or distributing assets from, a disqualified person remains a disqualified person for purposes of IRC Section 4975. A common example: using your IRA to acquire a property out of a deceased grandparent's trust. The presence of a trustee or executor managing the transaction does not change the analysis.
Buying a property from a sibling
Allowed, with caution. Siblings are not disqualified persons under IRC Section 4975(e)(2). However, if the transaction indirectly benefits a disqualified person, for example if proceeds from the sale relieve a financial obligation that a disqualified person shares, the analysis changes. The exclusive benefit rule also applies: the investment must stand on its own merits as a retirement-focused decision. When any family member is involved in a transaction, even a non-disqualified one, careful documentation of arm's-length terms is essential.
Renting a plan-owned property to yourself or a disqualified person
Prohibited. Your plan cannot lease property it owns to a disqualified person, even at full market rent. The transaction itself is prohibited regardless of terms.
Renting a plan-owned property to a sibling
Allowed, with caution. A lease to a sibling at fair market rent is a legitimate arm's-length transaction. The same indirect benefit and exclusive benefit considerations apply as with any transaction involving a non-disqualified family member. Document the terms carefully and ensure the investment decision is driven by the plan's interests, not personal relationships.
Having an unrelated friend buy a property from your parents, then having your IRA buy it from the friend
Prohibited. The IRS treats the friend as a "straw man." The transaction is viewed as occurring directly between your plan and a disqualified person, regardless of the intermediary. There is no codified period after which the transaction becomes arm's length.
Lending and credit
Lending money from your IRA to yourself
Prohibited. You cannot borrow from your IRA. Solo 401(k) participant loans are a separate structure with specific IRS-defined rules; this is not an exception to the prohibition for IRA plans.
Lending money from your IRA to a spouse, child, or parent
Prohibited. Loans to disqualified persons are prohibited regardless of loan terms, interest rate, or collateral.
Using your plan to lend money to a business you own or control
Prohibited. A business entity you own or control is a disqualified person under IRC Section 4975(e)(2). The ownership or control test applies, not the entity type. This covers LLCs, corporations, and partnerships alike.
Pledging a personal guarantee on a loan obtained by your IRA
Prohibited. This is an extension of credit between you and your plan, squarely within IRC Section 4975(c)(1)(B). IRAs may only use non-recourse financing, where the lender's sole remedy is the collateral itself.
Obtaining a credit card for the plan entity
Prohibited. A credit card issued to the plan's LLC or trust will require a personal guarantee from the account holder. That guarantee is an extension of credit between you and your plan, a prohibited transaction. A debit card linked directly to the plan's bank account is permissible, since it draws only from existing plan funds and involves no credit extension.
Lending money from your IRA to an unrelated third party
Allowed. Private lending to unrelated parties is a common and legitimate use of self-directed funds, provided the loan is structured on arm's-length terms.
Paying a plan expense personally and being reimbursed by the plan
Prohibited. Any personal payment on behalf of the plan, followed by reimbursement from plan funds, is treated as a loan from you to your plan, which is a prohibited extension of credit under IRC Section 4975(c)(1)(B). This applies regardless of the amount or intent. Common examples include paying an earnest money deposit before a plan is established or funded, covering property taxes or insurance when the plan account runs low, and paying for repairs or maintenance out of pocket. The solution in each case is to ensure sufficient funds are held in the plan account before any expense is incurred. If a plan is not yet established and a transaction is time-sensitive, the earnest money deposit must wait. Paying it personally and expecting reimbursement is not a workaround.
Personal services and labor
Performing repairs or renovations on a plan-owned property yourself
Prohibited. This is the sweat equity rule. Your labor has value, and contributing it to the plan is the equivalent of making an undocumented contribution. All work on plan-owned property must be performed by unrelated third parties.
Hiring a company you own to perform work on a plan-owned property
Prohibited. A business you control is a disqualified person under IRC Section 4975(e)(2). Routing plan expenditures to your own company is indirect self-dealing, the same result as doing the work yourself.
Hiring a sibling's company to manage or repair a plan-owned property
Allowed. Provided the company is genuinely independent and the terms are at fair market value. The sibling's non-disqualified status extends to their business interests, subject to the ownership and control test.
Hiring an unrelated third-party property manager
Allowed. Professional management by an unrelated party is standard practice and presents no prohibited transaction risk.
Compensation and fees
Paying yourself a management fee for overseeing your IRA's investments
Prohibited. You may administer your plan, sign contracts, execute transactions, collect rent, direct investments, but you may not compensate yourself for doing so.
Acting as the real estate agent on the purchase or sale of a plan-owned property and collecting a commission
Prohibited. A commission paid to you from a plan transaction is a direct financial benefit to a disqualified person. Market-rate pricing does not change the analysis.
Waiving the commission does not resolve the issue. A licensed realtor who provides professional services to their own plan, even at no charge, is gifting the value of those services to the plan. That is the functional equivalent of making an undocumented contribution, and can be viewed as self-dealing under the exclusive benefit rule. A licensed realtor may direct investments, execute contracts, and manage the administrative side of a transaction on behalf of their plan. What they may not do is act in their licensed professional capacity for the plan's benefit.
Investing your IRA in a fund you manage, where your management fee is calculated on total assets under management
Prohibited. Your plan's investment increases your personal compensation, an indirect benefit flowing to a disqualified person. The transaction is prohibited regardless of the fund's performance or the fee's reasonableness.
Business investments
Investing in a business you own or control
Prohibited. You are a disqualified person, and a business you own or control is a disqualified person under IRC Section 4975(e)(2). Your plan cannot purchase equity, provide capital, or otherwise invest in a business where you hold more than 49% ownership or exercise executive decision-making authority. This applies regardless of how the investment is structured, equity purchase, convertible note, or otherwise.
Note: there is a separate structure, the Rollover as Business Startup (ROBS), specifically designed to allow retirement funds to capitalize a business you will actively operate. That structure requires a C corporation and a qualified employer plan. It is not an exception to these rules; it is a different plan type entirely.
Investing in a startup your child, parent, or other lineal family member is starting
Prohibited. Lineal family members are disqualified persons. Providing startup capital to their business creates a direct benefit to a disqualified person, regardless of whether the investment terms are at market rate or the business is otherwise viable.
Investing in a business that results in you becoming an employee or receiving compensation
Proceed with caution, this could create a prohibited transaction. An investment that effectively purchases you a job, or positions you to draw a salary, consulting fee, or other compensation from the business, may constitute a prohibited transaction. The concern is that the benefit to you as a disqualified person is the employment itself, not just any financial return. If your plan invests in a business and you subsequently join as an officer, director, or paid consultant, the original investment may be scrutinized as self-dealing. Consult a tax attorney before structuring any investment where personal involvement is anticipated.
Taking on an officer, board, or director role in a business after your plan invests
Prohibited. Once your plan holds an investment in a business, accepting an executive or fiduciary role at that business creates a prohibited transaction. As an officer or director, you become a fiduciary of the entity, and your plan cannot transact with a fiduciary. Even if the investment predates your role, taking on that position effectively converts a permissible investment into a self-dealing arrangement.
Selling personally owned shares in a business and replacing that investment with plan funds
Prohibited. This is a swap sale. The IRS treats it as a transfer of a personal asset into your plan by indirect means. You cannot sell your interest in a business and then have your plan invest in the same business, regardless of the timing or whether the investment terms are reset. The same rule that prevents the "straw man" property transaction applies here.
Investing in a business owned and operated by unrelated parties
Allowed. Your plan may invest in any business where no disqualified person has ownership or control. Equity investments, convertible notes, private placements, and crowdfunding participations in unrelated businesses are all permissible, subject to standard prohibited investment rules and potential UBIT considerations on operating income.
For scenarios involving lending to a business you own or control, see the Lending and credit section above.
Guardrails: common misconceptions
"My spouse isn't on the account, so they aren't disqualified."
Incorrect. Your spouse is a disqualified person regardless of whether they are named on the account or have any ownership interest in it.
"I can contribute a property I own into my IRA for a tax benefit."
There is no mechanism to contribute an asset you personally own into a retirement plan. Plans may only be funded through cash contributions, rollovers, or transfers from other retirement accounts.
"My in-laws are not disqualified persons."
Partially correct, but it depends on the relationship. Your own lineal family members (parents, children, grandchildren and their spouses) are disqualified regardless of marital connection. Your spouse's parents and siblings are generally not disqualified persons under IRC Section 4975(e)(2), unless they independently qualify as fiduciaries or service providers to the plan.
When in doubt, walk away
The best approach to prohibited transactions is simple: if a transaction raises questions, don't do it. The scenarios in this article represent the most common situations investors encounter, but the IRS evaluates prohibited transactions based on facts and circumstances, not checklists. A transaction that looks permissible on the surface can still be scrutinized if the overall pattern suggests self-dealing.
Even if you prevail in an IRS audit, you have already lost. The cost of defending an audit, in professional fees, time, and stress, can easily exceed any return the transaction would have produced. Avoiding the audit entirely is always the better outcome.
Self-directed investing offers a wide range of legitimate opportunities across real estate, private lending, digital assets, and business equity. There is no shortage of compliant transactions that can produce strong returns. A questionable transaction is never worth putting your entire plan at risk.
If you are uncertain whether a specific transaction is permissible, consult a tax attorney or CPA who has direct experience with self-directed retirement plans before proceeding.
A note on consequences
For IRAs, the consequences of a prohibited transaction are not limited to the transaction itself. A violation typically disqualifies the entire IRA as of January 1 of the year the transaction occurred, meaning the full account balance becomes taxable in that year, with early distribution penalties potentially applying on top of that.
For Solo 401(k)s, excise taxes apply on the amount involved, with escalating penalties if the transaction is not corrected within the taxable period. Severe, but the account itself is not necessarily disqualified.
See Prohibited transactions for the complete consequences framework, correction mechanics, and full legal foundation under IRC Section 4975.