What is an IRA prohibited transaction?

Definition and disqualified persons

Publication 590-A (2025) defines a prohibited transaction generally as 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: your spouse, ancestor, lineal descendant, and any spouse of a lineal descendant. A fiduciary is anyone who exercises discretionary authority or control in managing the IRA or exercises any authority or control in managing or disposing of its assets, who provides investment advice to the IRA for a fee or has authority to, or who has discretionary responsibility in administering it.

Examples from the publication

The publication lists examples of prohibited transactions with a traditional IRA: borrowing money from it, selling property to it, using it as security for a loan, and buying property for personal use, present or future, with IRA funds. It also warns that if your IRA is invested in nonpublicly traded assets or assets that you directly control, the risk of engaging in a prohibited transaction may be increased. The common thread is that the IRA must be used for the exclusive benefit of the owner and beneficiaries, not as a source of credit or a place to do business with yourself or your family.

What happens to the account

Generally, if you or your beneficiary engage in a prohibited transaction in connection with your traditional IRA account at any time during the year, the account stops being an IRA as of the first day of that year. If you own more than one IRA, each is treated as a separate account, and only the IRA involved loses its status. The account is then treated as distributing all its assets to you at their fair market values on the first day of the year. If the total is more than your basis, you have a taxable gain includible in income, and the distribution may be subject to additional taxes or penalties, including the 10% additional tax if you are under 59½.

Worked example

Suppose your IRA is worth $180,000 on January 1, you have $20,000 of nondeductible basis, you are 47, and in June you engage in a prohibited transaction with that IRA. The account loses IRA status as of January 1. The deemed distribution is $180,000, the taxable gain is $180,000 − $20,000 = $160,000, and the 10% additional tax could be another $16,000. The calculator above computes that gain and the possible 10% tax. Note that the loss is retroactive to the first day of the year, not the date of the transaction, which is why the amount can be so large. This is only the publication’s arithmetic; whether a particular dealing is a prohibited transaction depends on the facts.

Taxes on others, and special cases

If someone other than the owner or beneficiary engages in a prohibited transaction, that person may be liable for a 15% tax on the amount involved and a 100% additional tax if the transaction is not corrected. If the account ceases to be an IRA because of the owner’s or beneficiary’s own transaction, they are not liable for those excise taxes but may owe the other taxes above. Other special cases: if you borrow against an IRA annuity contract you must include its fair market value as of the first day of the tax year in gross income; if you use part of an IRA account as security for a loan, that part is treated as a distribution; and if your employer or an association trust engages in a prohibited transaction, the account keeps its IRA treatment unless you participate.

Exempt transactions, collectibles and UBTI

Two things are not prohibited if they meet strict conditions: trustee payments for establishing or adding to an IRA that total not more than $10 for deposits under $5,000, or $20 for deposits of $5,000 or more, and certain reduced-cost bank services. Separately, an IRA that invests in collectibles such as artwork, rugs, antiques, metals, gems, stamps, coins or alcoholic beverages is treated as distributing the amount invested in the year of purchase, with exceptions for certain U.S.-minted gold and silver coins and some bullion. An IRA with $1,000 or more of unrelated trade or business gross income must have its trustee file Form 990-T. For contribution limits see the Roth IRA contribution calculator and can you contribute with no income.

Sources

• IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs) (2025): Prohibited Transactions; Effect on an IRA account; Taxes on prohibited transactions; Investment in Collectibles. Read November 2, 2026.

Edition read: Publication 590-A (2025), for use in preparing 2025 returns, including its What’s New for 2026 note. Dollar limits and dates are for the year stated; check the current publication and form instructions for your tax year. This page summarizes the publication and does not replace it.