Prohibited Transactions for a Self Directed Solo 401k or Checkbook IRA

The self-directed Solo 401k and the Checkbook IRA plan are both powerful investment vehicles. With these self-directed retirement plans, the account owners can take complete control and have a lot of flexibility. However, the plan owners also need to abide by IRS regulations and most importantly, need to avoid prohibited transactions. 

The types of Prohibited Transactions within a Solo 401k or a self-directed IRA

First is the Direct Prohibited Transaction. This happens when the plan engages in a transaction with a disqualified person. Examples of disqualified persons are the plan owner, their spouse, children or parents.

Related: Disqualified Person in a Self-Directed IRA or 401k

The second is the Extension of Credit Transaction. This occurs, for example, when a disqualified person guarantees a loan for a Solo 401k plan.

The last type is the Self-Dealing Transaction, which is when a disqualified person receives personal benefits from a Solo 401k investment. For example, if a real estate broker uses his Solo 401k funds to purchase a property and receives a sales commission.

If you have any other question about the prohibited transactions or about self-directed retirement plans, please let me know in the comment section below.