Can My IRA Buy From My Parents? 8 Self-Directed IRA Rules, Fast

“8 rapid-fire questions about self-directed IRAs: yes, no, or it depends?”

Self-directed IRA rules are easier to remember as yes-or-no answers. In our September live Q&A, Laura Dohanes, CPA, fired eight real questions at guest John Bowens of Equity Trust Company (the exact things people ask every week), then closed with five rules that avoid almost every trap.

Quick answer: Buy from your parents? No. From your brother? Yes, but carefully. Fix up the rental yourself? Gray: desk work only. Stay in the IRA’s vacation home? No. Personally guarantee its mortgage? No, non-recourse only. Pay one property-tax bill personally? No, it counts as a contribution. Lend to your own company? No. Invest in a friend’s syndication? Yes, as a passive investor.

Family deals: parents no, brother maybe

Q1: Can I buy a rental from my parents in my IRA or Solo 401(k)? No. Parents, grandparents, children and grandchildren are disqualified persons, and your account can’t transact with them.

Q2: Can I buy a property from my brother? You could, since a brother isn’t a disqualified person. But there’s also the exclusive benefit rule: if the deal is at fair market value it’s probably fine; if there’s any disparity that benefits you or your family, it can bust the transaction. John’s bigger point: think about the economics first. These are among the most powerful tax tools there are, so save the IRA for the deals that are truly worth it.

Sweat equity and personal use

Q3: Can I fix up my IRA’s rental myself on weekends? Gray. The code prohibits providing services but never defines “services.” The rule of thumb: do the desk work and administration, stay away from physical sweat equity. As Laura put it: don’t replace the roof.

Q4: Can I stay in my IRA’s vacation home for a week? No. That’s personal benefit. If your IRA owns a place in Maui, don’t stay there.

Money in, money out: guarantees, bills and loans

Q5: Can I personally guarantee my IRA’s mortgage? No. It has to be a true non-recourse loan. The good news: more lenders than ever lend to IRAs and 401(k)s, because default rates on these loans are low. (Laura’s tip: that lender is probably not your SBA lender.)

Q6: Can I pay one property-tax bill from my personal account? No. You helping the IRA isn’t as bad as the IRA helping you, but the payment is treated as a contribution. If you’ve already maxed out, it’s an excess contribution that wasn’t reported on Form 5498, and it owes a 6% tax each year until it’s fixed. Every expense comes from the IRA; every dollar of profit goes back in.

Q7: Can my IRA lend money to my own company? No. A company you (and your family) own 50% or more of is a disqualified person. And a creative workaround (you own 49% of an LLC, a friend owns 51%, your IRA lends to it) still gets looked through if you personally benefit. John cites the Rollins tax-court case, where loans to companies the plan owner held well under half of were still prohibited.

Investing in a friend’s syndication

Q8: Can I invest in a friend’s syndication? Yes, as long as your friend isn’t a disqualified person and your account is a passive limited partner. Custodians process these every day. If the syndication uses debt, though, consider a Solo 401(k) instead of an IRA to avoid UDFI tax.

Laura’s 5 self-directed IRA rules to avoid almost every pitfall

1. No disqualified person on either side of a transaction — buying, selling, renting, lending, managing or services.
2. No sweat equity. Don’t paint or fix. Desk work only.
3. No personal use. Not one night, not one week, not family.
4. Every dollar in and out runs through the account. The account pays every expense and receives all the income. Don’t front money, don’t take money out, don’t borrow from it.
5. If you borrow, non-recourse only. Remember that leverage creates a tax bill (UDFI) in an IRA that a Solo 401(k) generally avoids.

Official IRS reference: IRS — Publication 590-A, Contributions to IRAs (includes prohibited transactions)

Key takeaways

• Never transact with parents, grandparents, children or grandchildren; they’re disqualified persons.
• Siblings are allowed, but only at fair market value and for the IRA’s exclusive benefit.
• Desk work only: no physical sweat equity, and no personal use of IRA property.
• Loans to an IRA must be non-recourse; paying an IRA bill personally counts as a contribution.
• Passive investments in a friend’s syndication are fine, but leverage may favor a Solo 401(k).

Self-directed IRA rules FAQs

Related questions from this Q&A

• The full September self-directed IRA Q&A with John Bowens: every question on one page
• Self-directed IRA prohibited transactions: what your IRA can’t touch
• Prohibited transaction penalty: IRA vs Solo 401(k)

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Guest: John Bowens, Director & Head of Education and Investor Success at Equity Trust Company, appeared as a guest. Custodians, including Equity Trust Company, do not provide tax, legal or investment advice.

Disclaimer: This article is for educational purposes only and is not tax, legal, or financial advice. Every situation is different. Talk to a qualified professional about your specific facts before making any decisions.