Through publications, code, and Private Letter Rulings, the IRS and the Department of Labor provides the rules and guidelines for tax-deferred investments. We encourage you to consult with a tax professional on the IRS rules surrounding both the type of retirement account that may be right for you as well as the investment choices and transactions contemplated.
Publications 590-A and 590-B
Provide a summary of information for Traditional, Roth, and SIMPLE IRAs, including:
- Who qualifies
- Contribution Limits
- Distribution rules
- Prohibited transactions
- Required Minimum Distributions
IRS Code 4975
Provides an explanation of prohibited transactions within retirement accounts and the penalties or taxes that will accrue from a prohibited transaction.
Excerpt from IRS Code 4975:
(c) Prohibited Transaction
For purposes of this section, the term “prohibited transaction” means any direct or indirect –
(A) sale or exchange, or leasing, of any property between a plan and a disqualified person;
(B) lending of money or other extension of credit between a plan and a disqualified person;
(C) furnishing of goods, services, or facilities between a plan and a disqualified person;
(D) transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a plan;
(E) act by a disqualified person who is a fiduciary whereby he deals with the income or assets of a plan in his own interests or for his own account; or
(F) receipt of any consideration for his own personal account by any disqualified person who is a fiduciary from any party dealing with the plan in connection with a transaction involving the income or assets of the plan.
(2) Disqualified Person
For purposes of this section, the term “disqualified person” means a person who is –
(A) a fiduciary;
(B) a person providing services to the plan;
(C) an employer any of whose employees are covered by the plan;
(D) an employee organization any of whose members are covered by the plan;
(E) an owner, direct or indirect, of 50 percent or more of –
(i) the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of a corporation,
(ii) the capital interest or the profits interest of a partnership, or
(iii) the beneficial interest of a trust or unincorporated enterprise,
which is an employer or an employee organization described in subparagraph (C) or (D);
(F) a member of the family (as defined in paragraph (6)) of any individual described in subparagraph (A), (B), (C), or (E);
(G) a corporation, partnership, or trust or estate of which (or in which) 50 percent or more of –
(i) the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of such corporation,
(ii) the capital interest or profits interest of such partnership, or
(iii) the beneficial interest of such trust or estate,
is owned directly or indirectly, or held by persons described in subparagraph (A), (B), (C), (D), or (E);
(H) an officer, director (or an individual having powers or responsibilities similar to those of officers or directors), a 10 percent or more shareholder, or a highly compensated employee (earning 10 percent or more of the yearly wages of an employer) of a person described in subparagraph (C), (D), (E), or (G); or
(H) a 10 percent or more (in capital or profits) partner or joint venturer of a person described in subparagraph (C), (D), (E), or (G).
The Secretary, after consultation and coordination with the Secretary of Labor or his delegate, may by regulation prescribe a percentage lower than 50 percent for subparagraphs (E) and (G) and lower than 10 percent for subparagraphs (H) and (I).
IRS Code 408
Provides the guidelines for Individual Retirement Accounts, including the types of investments that cannot be held within an IRA account.
In addition to the IRS publications and code, rulings can also provide a resource as to how the Department of Labor and the tax courts may decide on investments and transactions made within an IRA.