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Disqualified Persons

The Internal Revenue Code prohibits certain transactions between your IRA and disqualified persons. The purpose of your IRA is to benefit you when you retire.  Therefore, transactions that provide current benefit to you as the IRA owner or to certain parties related to you or your IRA are considered prohibited transactions and may result in significant tax penalties to you.

Disqualified persons include:

  • You (the IRA owner) 
  • Your spouse
  • Ancestors (mom, dad, grandparents).
  • Lineal Descendants (daughters, sons, grandchildren).
  • Spouses of Lineal Descendants (son or daughter-in-law)
  • Investment advisors, fiduciaries* or persons providing services to your IRA
  • Any entity in which any of the disqualified persons mentioned above has a 50% or greater interest

Your brothers, sisters, brothers-in-law, sisters-in-law, stepchildren (or your spouse’s stepchildren), grandparents’ spouses, aunts, uncles, cousins and friends are NOT disqualified parties and may engage in certain transactions with your IRA.

Please see Prohibited Transactions for more information.


* IRS Definition of Fiduciary

As related to a retirement plan, the term “fiduciary” means any person who—

(A) exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets,

(B) renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or

(C) has any discretionary authority or discretionary responsibility in the administration of such plan.

Such term includes any person designated under section 405(c)(1)(B) of the Employee Retirement Income Security Act of 1974.

For more information see US Code Title 26, §4975 www.irs.gov/retirement/article/0,,id=163722,00.html

 

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