An IRA, whether Roth or traditional, can hold your money te almost any type of investment except collectibles. It’s ideally legal for a Roth to buy stock, but the law does limit who the Roth can buy from and whose stock it can invest te. Making a prohibited Roth transaction results ter tax penalties.
Outside of buying collectibles, the IRS investment options are open — but dealing with a disqualified person is downright prohibited. Even if you have a self-directed Roth where you determine what to buy and sell, you can’t do business with your Roth, and neither can your beneficiary or members of your families. The fiduciary — the account trustee — is also disqualified from doing business with your Roth.
The IRS has a long list of prohibited transactions for you and other disqualified people. The no-no dealings include transferring Roth money or assets to you or using them for your benefit, selling to the account, borrowing from the Roth or leasing Roth property. This doesn’t affect your rights spil the proprietor of the project, however. You can, for example, withdraw contributions from your Roth legally, then invest them ter your company without problems.
According to “The Journal of Accountancy,” if your Roth buys stock ter a company where you’re the majority stockholder or an officer, the IRS would most likely class that spil a prohibited transaction. You’re also ter trouble if your Roth buys company assets such spil accounts receivable for less than the market value. Even if you come up with some investment project that isn’t specifically prohibited, the IRS can still potentially review it and determine you’re gaming the system.
If the IRS catches you te a prohibited transaction, you’re not going to be blessed. The tax code says that when a traditional or Roth IRA engages te any barred investment, it stops being an IRA and becomes just an account with money te it. You’ve already paid tax on your original contributions ter a Roth, but all your earnings then become taxable income. You may have to pay a tax penalty for withdrawing your earnings early.
About the Author
A graduate of Oberlin Collegium, Fraser Sherman began writing ter 1981. Since then he’s researched and written newspaper and tijdschrift stories on city government, court cases, business, real estate and finance, the uses of fresh technologies and filmrolletje history. Sherman has worked for more than a decade spil a newspaper reporter, and his tv-programma articles have bot published ter ",Newsweek,", ",Air & Space,", ",Backpacker", and ",Boys’ Life.", Sherman is also the author of three filmrolletje reference books, with a fourth presently under way.