A prohibited transaction is a transaction involving a retirement account, such as an IRA or Solo 401(k), that violates rules governing self-dealing and conflicts of interest between the account and certain related parties, commonly called disqualified persons. Examples generally include the account owner personally using or living in real estate owned by the IRA, lending money between the account and a disqualified person, or buying an asset from, or selling one to, a close family member using retirement funds.
The rules exist to preserve the separation between an individual's personal financial activity and the tax-advantaged retirement account, preventing the account from being used for personal benefit before distribution. The consequences of engaging in a prohibited transaction are significant: depending on the circumstances, the entire account can lose its tax-advantaged status, effectively triggering a full taxable distribution. Because the rules are detailed and fact-specific, individuals holding alternative assets in a self-directed retirement account are generally advised to review any transaction involving a related party carefully before proceeding.
Further reading: Real Estate Investment Strategies for Accredited Investors in 2026
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