Disqualified

Investments

Disqualified

Investments

Check Book I R A LLC BBB Business Review

What’s Not Allowed?        What’s Off-Limits?

The rules are pretty simple, but they’re important.
The limits to an IRA, Check Book IRA or a Solo 401(k) can be divided into three groups.

DISQUALIFIED

INVESTMENTS

DISQUALIFIED

PERSONS

DISQUALIFIED

COMPANIES/ENTITIES

DISQUALIFIED

INVESTMENTS

Life insurance and collectibles are the only investments prohibited to a retirement plan.  The Employee Retirement Income Security Act (ERISA) prohibits life insurance and 26 USC 408(m) prohibits investments into collectibles.

DISQUALIFIED

PERSONS

26 USC 4975 identifies certain persons that are considered to be disqualified to either the Check Book IRA or the Solo 401(k), which means that none of these persons can deal with or have anything to do with the Plan.  Its a pretty short list, so let’s go through who the disqualified persons are:

  • Plan Owner’s Ancestors, Lineal Descendants
  • Spouses of the Lineal Descendants
  • Plan Owner
  • Plan Owner’s Spouse

So, let’s assume we’re talking about your Check Book Retirement Plan (CBRP). The disqualified persons would be you, your spouse, and your lineal descendants and their spouses; so your parents, grandparents, children and their spouses, grandchildren and their spouses, etc…

 
All of those people are off limits to the Plan. That means that no transactions of any kind can occur between those parties and your Solo 401(k) or Check Book IRA.
 
For more information, read my article Prohibited Transaction Rules, Part II: Who is a Prohibited Person? It was written with the Check Book IRA in mind but applies just as well to the Solo 401(k).

 

DISQUALIFIED

COMPANIES

OR

ENTITIES

Entities or companies that are owned or controlled by disqualified persons can also be considered prohibited.  The general rule is that if any one or more disqualified persons owns 50% or more (individually or collectively) of an entity, then that entity is considered prohibited and cannot deal with the Solo 401(k).

Stay away from these entities.  For more information, read my article Prohibited Transaction Rules, Part III: Disqualified Entities.

Putting it all together…

Alright, so now that we’re through the technical stuff, let’s talk about what this means in practice.

I wrote another article called Prohibited Transaction Rules, Part IV: IRA LLC Examples  that puts all this together and gives a number of examples.  Again, its written with the IRA LLC or Check Book IRA in mind, but these are the exact same rules that your Solo 401(k) would be subject to.  That article should help you see how things fit together in the real world.  This is an important subject to grasp, because while the limitations put on a 401(k) are few and far between, they are integral to ensuring your account remains in compliance.

Prohibited Transaction Rules, Part 4.

Let Us Put Our Team at Your Disposal

Our website is the most comprehensive retirement site on the internet.  We’re happy to share information with whoever wants it; we go above and beyond for our clients.  We strive to make ourselves available for any questions throughout the process and even after the Solo 401(k) setup is complete.

Its important to make sure you have someone to turn to after your Solo 401(k) is in place.  Our clients rest easy knowing we’re here to help them understand the rules, provide guidance on opening bank accounts, trading accounts; and be here for other questions that might come up.

Click Here for Our Online Application

Redmond, OR

Minneapolis, MN

Scottsdale, AZ

Call 1-800-482-2760

 7 FREE Email Lessons

on the Self Directed Check Book IRA

Also included is our Newsletter “The Shield”

(We NEVER Spam)

Name *

Email *

Phone

How can we help? *

Which free course would you want to receive?

Speak with an EXPERT Now

800-482-2760

 

Redmond OR | Scottsdale AZ | Minneapolis MN

Fax: 866.302.5992
M-F 6:00 am-5:00 pm PST