There are certain “transactions” that are not allowed to happen in certain retirement plans. An example would be the Plan Sponsor (say, the owner of a small business) borrowing money from the plan to purchase something – maybe a house or car. These types of transactions are prohibited because the IRS/DOL want to make sure that the participants are being treated fairly. These types of transactions, which likely benefit an owner or other stakeholder but not most of the regular plan participants, are not OK in the eyes of the IRS and DOL!
The IRS website actually has a pretty good summary of prohibited transactions. I’ll list them here:
- A disqualified person’s transfer of plan income or assets to, or use of them by or for his or her benefit
- A fiduciary’s act by which he or she deals with plan income or assets in his or her own interest
- A fiduciary’s receipt of consideration for his or her own account in a transaction that involves plan income or assets from any party dealing with the plan
- Any of the following acts between the plan and a disqualified person:
- Selling, exchanging, or leasing property
- Lending money or extending credit
- Furnishing goods, services or facilities
If you have questions about prohibited transactions feel free to contact us.