The most frequently asked questions relate to doing transactions which are prohibited or self dealing. What is Self Dealing? Remarkably, the tax code makes some sense in this area. The concept of self dealing within the context of an IRA is easy: Your retirement plan is supposed to benefit when you retire, not before then. Self dealing transactions are outlined in the code as prohibited transaction, but clear examples of what is not prohibited are scarce.

To begin, we will explore what "You", Individual Retirement Account", and "Disqualified Persons" are, and then what you can and can't do or simply what "prohibited transactions" are.

Who Is "You" and Who Are "You" Not?

You. What is most important about "You" is who you are not. Your are not the Individual Retirement Account. "You" establish a trust for your benefit in an Individual Retirement Arrangement through a legally permitted entity, such as a bank, savings association or non-bank trustee. An "Individual Retirement Account" is a type of arrangement that allows tax deferrals or permits tax free accumulations of money. This account (IRA) is opened so that transactions you direct may be processed. Such transactions include contributions, purchases, sales and distributions.

Contributions are those transactions in which you deposit money to your account based on the legal limits in accordance with your earned income. Purchases are the acquisition of assets which you direct through the trustee or custodian of your IRA. You may never purchase an asset and then contribute them to your IRA. Only cash may be contributed as noted previously.

Sales are those transactions which you direct the trustee or custodian of your IRA to sell from your account. The proceeds of the sale may be in cash or other property. It remains in your account until the assets in your account are distributed.

Distributions are withdrawals from your account. You request those withdrawals, in cash or in kind, from the trustee or custodian to be made to you. If you ask that these assets be paid or conveyed to a third party, it still counts as a withdrawal to you. Although not generally an issue with Roth IRAs, it is important for traditional IRAs, where distributions or withdrawals are taxable events.

As noted above "You" never "Buy" an IRA. You always open an Individual Retirement Account. You then direct the purchase of an asset. This purchase is either through the opening an account process or by a separate direction.

An Individual Retirement Account is also known as a Plan.

Now that you know that "You" and your IRA are different, and that your trustee or custodian acts on your behalf based on your direction, what can't "You" do? "You" and "Disqualified Persons" can't engage in prohibited transactions. Generally, a prohibited transaction is any improper use of your IRA (or annuity) by you or any disqualified person.

Disqualified Persons

Disqualified persons include:

• a fiduciary;
• a person providing services to the plan;
• an owner, direct or indirect, of 50 percent or more of

1.) The combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of a corporation.

2.) The capital interest or the profits interest of a partnership.

• a member of the family (ascendants, descendants, but not siblings);

• a corporation, partnership, or trust or estate of which (or in which) 50 percent or more of the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of such corporation, the capital interest or profits interest of such partnership, or the beneficial interest of such trust or estate, is owned directly or indirectly, or held by persons described above;

• an officer, director (or an individual having powers or responsibilities similar to those of officers or directors), a 10 percent or more shareholder, or a highly compensated employee (earning 10 percent or more of the yearly wages of an employer); a 10 percent or more (in capital or profits) partner or joint venturer of a person.

What is Prohibited

So here's what's prohibited:

Your plan may not, directly or indirectly, sell, exchange or lease any property with a you or disqualified person. This includes lending money or extending credit. Your plan can't furnish goods, services or facilities to you or a disqualified person. You or a disqualified person cannot transfer to each other, use or benefit from the asset in the plan. An exemption.

There is an exemption which applies: Any contract, or reasonable arrangement, made with a disqualified person for office space, or legal, accounting, or other services necessary for the establishment or operation of the plan, if no more than reasonable compensation is paid therefor.

The exemption may include servicing notes which you have directed to be purchased and managing property which you have directed to be purchased. It does not include leasing back property to yourself, or a disqualified person, acquired by your direction in a plan. You may not be compensated for rehab work which you or a disqualified person do to an asset in your plan. You may do all of these things with any other person other than you, a or a disqualified person. You may find a person who does similar type of investments with their plan assets and arrange a mutually satisfactory deal to do what you mutually agree to. Some people use their siblings to do what may be prohibited otherwise.

In summary there are numerous methods, which do not violate the law, which you can use to meet your long term objectives, and get the most out of your plan. We encourage the complete understanding of the rules, and the benefits available to you.