Rocket Dollar Knowledge Base

Questionnaire: Is my investment a prohibited transaction?

You can use the prohibited transaction questionnaire to help and see if you can make an investment. Customers are responsible for their deal review process at Rocket Dollar, leading to a smoother and quicker process to fund investments.

What type of asset are you investing in?

You can invest in a number of different assets allowed by the IRS.

You cannot invest in the following assets, as they represent a prohibited transaction per the IRS.

  • Collectibles like wine, art, classic cars, baseball cards, beanie babies, antiques, rugs, gems, and metals not described or approved under 31 USC Section 5112.  
  • Coins and metals that are not approved by the IRS
  • Life insurance
  • S-Corp stock. S-Corp stock income or losses are passed to shareholders, and thus cannot be hidden in special tax treatment retirement accounts.

Will you be lending funds or investing with a family member and their personal funds?

Whom can I invest with?

  • There many close friends and family members that you can invest with who might not immediately come to mind.

Who can I not invest with? The IRS heavily regulates those where you can pass on assets from generation to generation avoid paying taxes.

  • Yourself
  • Parents or grandparents
  • children and adopted children
  • Spouses of children
  • key persons at your company, like highly comped employees

Do you own over 50% of this company? Or are you closely related to key leadership that owns over 10%?

You can invest in companies in which you own less than 50%. Prohibited persons (family) also count to this total.

If you and prohibited persons own over 50% of a company, you might have to exercise caution about conducting deals and transactions with certain key employees. Anyone who owns 10% of the company is a prohibited person. 

You can read more on our article, "Can I invest in the company I work at?"

Will you or any family member receive personal gain directly or indirectly as a result of your IRA investment into a company or deal?

Your IRA and retirement should benefit because of your investment actions, not your personal business or a prohibited person’s business. Quid pro quo arrangements, where your IRA invests for favors elsewhere, also put your retirement account at risk of audit and being distributed.

You can not live or work directly in any investment you own over 50% in, and a prohibited person should not either. Any working duties should be restricted to managerial duties. 

You can review more specific articles about prohibited transactions in the rest of our knowledge base.

Did you put an extra "dummy layer" in-between your transaction and a disqualified person or prohibited transaction that serves no purpose other than trying to make it legal?

This is covered in the Step Transition Doctrine - When you try to put a straw person as a layer in between a prohibited person or prohibited transaction, it is still a prohibited transaction.

Breaking Any of these rule puts your self-directed IRA at risk of distribution or Solo 401(k) of fines. 

 


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