IRS Publication 590 on Prohibited Transactions
IRS Publication 590 is entitled “Individual Retirement Arrangements.” The following text is from page 43 of Publication 590:
What Acts Result in Penalties or Additional Taxes?
The tax advantages of using traditional lRAs for retirement savings can be offset by additional taxes and penalties if you do not follow the rules. There are additions to the regular tax for using your IRA funds in prohibited transactions. There are also additional taxes for the following activities.
- Investing in collectibles.
- Making excess contributions.
- Taking early distributions.
- Allowing excess amounts to accumulate (failing to take required distributions).
There are penalties for overstating the amount of nondeductible contributions and for failure to file Form 8606, if required.
This chapter discusses those acts that you should avoid and the additional taxes and other costs, including loss of IRA status, that apply if you do not avoid those acts.
Generally, a prohibited transaction is any improper use of your traditional IRA account or annuity by you, your beneficiary, or any disqualified person.
Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of […]